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Bank of Korea Holds Steady Amid Economic Challenges

Despite high inflation and household debt, the central bank maintains growth and rate projections, focusing on stability
South Korea
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The Bank of Korea (BOK) is forging ahead with its commitment to economic stability despite stubbornly high inflation and mounting household debt, keeping its growth forecast for this year at 2.1%. On their widely anticipated decision to keep their benchmark rate on hold at 3.5% for a ninth straight month Thursday, BOK officials signaled the central bank’s determination to cautiously help maneuver Asia’s fourth-largest economy through a forest of concerns.

Inflation has not only overshot the central bank’s comfort zone but land prices and household indebtedness have risen. South Korea’s heavy reliance on imported energy also has it teetering on the edge of further vulnerability to external shocks in a political landscape shot through with volatility.
In a recent address, Governor Rhee Chang-yong underlined the BOK’s focus on price stability as it maps out the best policy mix for a financially sound recovery. It kept its inflation estimate unchanged at 2.6% on Thursday. However higher values for semiconductors which rose 39% last month over a year earlier and a record $6.2 billion for automobile exports as signs of life from its biggest manufacturing industries signal the buoyancy of large sectors of South Korea’s economy.

Along with an International Monetary Fund estimate that South Korea will expand its economy this year at a 2.3% clip, the resilience is likely to enhance the allure of the BOK’s position. No matter how close to price stability and brisk expansion his policymakers believe the BOK can maintain, the global and domestic economic table is set for future entrée.

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