With the U.S. Federal Reserve (Fed) maintaining a cautious stance on changing its monetary policy, the Bank of Korea (BOK) is expected to follow suit and delay a rate cut until at least the fourth quarter of this year, according to market watchers, Thursday.
Both the U.S. and Korea remain concerned that lowering policy rates prematurely during a phase of persistently high inflation could undermine overall price stability.
On Wednesday (local time), the Fed held a regular meeting of the Federal Open Market Committee (FOMC) and unanimously agreed to maintain the policy rate at 5.25 to 5.5 percent. It also significantly reduced this year’s expected number of rate cuts from three to one.
This is the seventh time that the Fed held the rate steady since July of last year. The policy rate gap between Korea and the U.S. also remained at a historic high of 2 percentage points following the decision.
“Fed Chair Jerome Powell positively evaluated consumer price index results, but maintained a cautious stance, stating that he needs further confidence in stabilizing prices before cutting interest rates and that the tempo may be slower than what the market expects,” said Park Jong-woo, deputy governor of the BOK, during the meeting at the central bank.
The BOK shares a similar outlook with the Fed regarding rate cuts.
“If we are forced to raise interest rates again due to inflation after prematurely shifting to a dovish stance, the policy costs at that time 토토 would be much higher,” BOK Governor Rhee Chang-yong said during a speech on Wednesday celebrating the central bank’s 74th anniversary.
“Therefore, it is crucial to patiently maintain the current tight monetary policy until we are confident that inflation will reach the target level of 2 percent,” Rhee added.
Consumer prices in Korea have decreased from the 3 percent range in February and March to the upper 2 percent range in April and May.
However, concerns of upward pressure on consumer prices are unavoidable due to persistently high international oil prices and the weak Korean won, which remains at 1,370 to 1,380 won per U.S. dollar.
Experts also believe that both central banks will not rush to cut rates.
The widely-held scenario is that the Fed will lower the benchmark rate once or twice from September at the earliest, while the BOK may lower the rate once in the fourth quarter and delay any further reductions until next year.