South Korea's Central Bank Freezes Interest Rate to Boost Economic Recovery

Strategic Insights -

Despite soaring property prices and a sputtering economic recovery, the Bank of Korea has frozen its key interest rate for a fourth consecutive month in December. This move is seen as an attempt to kick-start the economy, amid concerns that high interest rates could curb house prices and undermine the recovery. Analysts had predicted a rate freeze, with 14 out of 16 analysts polled by Yonhap Infomax anticipating a decision to keep the rate unchanged.

Key Takeaways:

  • The Bank of Korea has retained the December target for the call rate at 4.5 per cent, a five-year high, despite soaring property prices.
  • The rate freeze is the fourth consecutive month, with the central bank keeping its interest rate unchanged since September to boost the economy.
  • The move is seen as an attempt to kick-start the economy, amid concerns that high interest rates could curb house prices and undermine the recovery.
  • Analysts had predicted a rate freeze, with 14 out of 16 analysts polled by Yonhap Infomax anticipating a decision to keep the rate unchanged.
  • The central bank had ordered lenders to increase reserve requirements in late November, which will put a lid on banks' household loans, and potentially tame home prices.
  • South Korea's house prices grew at the fastest pace in more than 16 years in November, according to Kookmin Bank.
  • A stronger Korean currency to the U.S. dollar, which set a fresh nine-year high on Wednesday, also gave the bank little reason to hike the rate.
  • South Korea's tame inflation, with consumer prices declining by the greatest amount in a year in November, also contributed to the rate freeze.

Statistics:

  • The Bank of Korea's key interest rate remains at 4.5 per cent, a five-year high.
  • 14 out of 16 analysts predicted a rate freeze, according to Yonhap Infomax.
  • South Korea's economic growth is expected to slow to 4.4 per cent on an annual basis from an expected 5 per cent advance this year due to cooling exports and private spending.
  • South Korea's house prices grew at the fastest pace in more than 16 years in November, according to Kookmin Bank.
  • The Korean currency to the U.S. dollar set a fresh nine-year high on Wednesday.

Sources:

  • Yonhap Infomax
  • Yonhap News Agency
  • Bank of Korea
  • Kookmin Bank
  • State statistics office