BOK board members not expecting policy rate rise in short term, Rhee notes

BOK board members not expecting policy rate rise in short term, Rhee notes

BOK Maintains Policy Rate Amid Extended Restrictive Stance, New 6-Month Guidance Framework

The Bank of Korea (BOK) has confirmed its commitment to maintaining a restrictive monetary policy for an extended period, with Governor Rhee Chang Yong emphasizing that interest rates will remain elevated for over six months. At its latest policy meeting, the BOK kept the benchmark rate unchanged at 3.50%, aligning with market expectations. This decision marks the seventh consecutive meeting without a rate adjustment, as policymakers prioritize curbing inflation over addressing near-term growth concerns.

Governor Rhee highlighted that the board's updated policy statement now includes a "sufficiently long period of time" for maintaining tight monetary conditions, replacing earlier phrasing of "considerable time." This shift signals a more explicit acknowledgment of the need for prolonged rate stability to ensure inflation converges to the 2% target. Rhee noted that four of six board members (excluding himself) advocate keeping the door open for a potential 25-basis-point hike to 3.75%, citing persistent inflationary pressures.

To enhance transparency, the BOK announced a new 6-month rate guidance framework, set to debut on February 27, 2026. Under this system, Monetary Policy Board members will submit anonymous projections for the base rate in three scenarios—baseline, upside, and downside—creating a "dot plot" to be published quarterly. This replaces the previous 3-month conditional guidance, which Rhee described as insufficient for conveying medium-term policy intentions.

Despite weaker-than-expected economic growth forecasts—revised to 2.1% for 2024—the BOK remains cautious about rate cuts. Rhee reiterated that accommodative policies could inadvertently inflate asset prices without addressing structural growth challenges. Meanwhile, inflation forecasts were raised to 3.6% for 2023 and 2.6% for 2024, reflecting ongoing price pressures from agricultural and industrial goods.

The decision has bolstered government bond yields, with 10-year yields rising 5.8 bps to 3.699%, as markets price in prolonged tightness. The BOK's revised communication strategy aims to clarify forward guidance while balancing short-term economic risks with long-term inflation control.