SEOUL – South Korea’s central bank said on April 12 that greater uncertainty over the inflation outlook and the strength of exports argued against a near-term push to cut interest rates, after the bank left the policy rate steady at a 15-year high.

“To give a six-month ahead outlook or so, all of the board members including myself deem it’s difficult to make a call on the possibility of a rate cut for the second half,” Bank of Korea (BOK) governor Rhee Chang-yong said at a post-policy news conference after keeping its key rate at 3.5 per cent, as expected by all 39 analysts polled by Reuters.

BOK has argued that it needs to see more progress on prices to gain confidence that they are moving towards the bank’s 2 per cent target, before it will lower borrowing costs.

While Mr Rhee flagged that it might be difficult to reduce rates in 2024, there was a crucial change in the central bank’s policy statement, suggesting a cut was still possible.

BOK said it “will keep its restrictive monetary policy stance for a sufficient period of time”, a shift from its statement in February, when it said restrictive policy would be maintained for “a sufficiently long period of time”.

South Korea’s policy-sensitive three-year treasury bond yield pared some losses during Mr Rhee’s news conference, after falling by as much as 7.3 basis points to 3.393 per cent on the policy statement.

Shinyoung Securities analyst Cho Yong-gu said: “There has been a degree of ambiguity in Rhee’s communication on Friday.”

“Rhee said he did not signal for a cut and that it’s difficult for board members to make predictions... but at the same time, the omission of the word ‘long’ in the statement signals that the door for a rate cut is open for the next six months,” added Mr Cho, who sees two rate cuts in the second half.

Analysts expect BOK to deliver a 25 basis-point cut in both the third and fourth quarters, taking the benchmark rate down to 3 per cent by the end of 2024, from 3.5 per cent currently.

Mr Rhee said the bank will monitor policies abroad, where the European Central Bank signalled it could start cutting in June, while uncertainty is rising over how soon the US Federal Reserve may cut.

That divergence meant BOK could pace its moves downwards independently, based on domestic prices.

“The Fed’s signal that a pivot is under way allows more room for us to be decoupled,” Mr Rhee said.

The consumer price index advanced 3.1 per cent in March year on year, the same pace as in February after three months of easing, stoking views that it is still too early for BOK to consider easing.

Exports rose for a sixth straight month, led by robust sales of chips, adding to the case for BOK to keep rates high.

The worry for BOK is that higher oil prices and improving exports could drive a fresh round of inflationary pressure, at a time when a weak won has also become a headache.

Policymakers worry that a weakening currency – down by about 6 per cent against the US dollar in 2024 – could inflate the cost of importing fuel and raw materials, adding to inflationary pressure.

Asked by a reporter whether the won is a worry, Mr Rhee said he is monitoring to see if the won’s recent declines are excessive, and that the bank has measures to stabilise the currency market if needed. REUTERS