SEOUL—South Korea’s central bank on Thursday froze benchmark interest rates at 3.5 percent owing to concerns over the slowing economy, ending a year-long run of hikes.
The Bank of Korea decision comes after the economy shrank in the last three months of 2022—the first time since the second quarter of 2020 as the pandemic kicked in.
The reading prompted speculation that the BOK would have to adjust its pace of monetary tightening.
It had hiked rates eight times since January 2022—with one pause in February—as it fought to curb rising prices, which surged last year after Russia’s invasion of Ukraine sent the cost of energy and food soaring.
While the inflation is projected to be “above the target level” this year, the BOK said in a statement it was deemed “appropriate to judge whether the base rate needs to rise further while assessing the pace of (the) inflation slowdown.”
“Currently available information suggests that the slowdown of global economic growth and inflation has continued,” it added.
The BOK said the economy had slowed because of weakening consumption and a continued decrease in exports.
Economic conditions could improve in the second half of the year, with recovery in the Chinese economy and demand in the IT industry bouncing back, but global economic uncertainties were still “judged to be high”, the bank said.
Against this backdrop, the BOK revised its economic growth projection down to 1.6 percent from 1.7 percent in 2023, compared with a 2.6 percent expansion last year.
Since August in 2021, the central bank has raised rates a combined three percent, having kept them at record lows to help the economy weather the coronavirus pandemic.