Bank of Korea stands pat again as economy shows signs of cooling

South Korea’s central bank stood pat on interest rates for a sixth consecutive time, as widely expected, as the economy shows signs of cooling while uncertainty in the Middle East grows.

The Bank of Korea kept its benchmark seven-day repurchase rate unchanged at 3.50% on Thursday, unfazed by a recent pickup in inflation which had been cooling for months.

All 27 analysts surveyed by The Wall Street Journal ahead of the bank’s decision had forecast no change to the rate in October. They expect the bank to hold the policy rate steady until the end of 2023, with some penciling in rate cuts in 2024 to support economic growth and ease financial stress for households.

Analysts said that headline inflation picked up on volatile oil prices for a second straight month in September but core inflation, which excludes food and energy prices, was still trending lower.

South Korea’s economy has been cooling despite some recent signs of a recovery, with exports shrinking on a year-on-year basis for a 12th consecutive month in September.

The central bank expects the country’s 2023 gross domestic product to grow 1.4% after expanding 2.6% in 2022.

The bank expects inflation to average 3.5% this year, above its annual 2.0% target but easing sharply from 5.1% last year.

The war between Israel and Hamas is also fuelling uncertainty about the global economic outlook, which is likely to keep the BOK cautious about tightening policy further.

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