• South Korea's Presidential office expressed disappointment over the Bank of Korea's decision to freeze the key interest rate at 3.5%.
• The decision has raised concerns over its potential impact on domestic consumption, prompting the government to plan measures to address this.
• The central bank's decision was influenced by soaring home prices and high household debt, with a potential rate cut suggested within the next three months.
• The rate freeze also came as the central bank trimmed its growth projection for the year to 2.4% from its outlook of a 2.5% expansion estimate in May.

South Korea's Presidential office has expressed disappointment over the Bank of Korea's (BOK) decision to freeze the key interest rate at 3.5 per cent. This decision, announced on August 22, 2024, has raised concerns over its potential impact on domestic consumption. The Presidential office, while acknowledging the authority of the Monetary Policy Board in making the interest rate decision, expressed disappointment from the perspective of boosting domestic demand.

The South Korean government, in response to the rate freeze and concerns over domestic consumption, plans to announce measures to address domestic demand. These measures include ensuring the supply of essential goods for the Chuseok holiday, a major harvest festival and a three-day holiday in South Korea celebrated on the 15th day of the 8th month of the lunar calendar.

The BOK's decision to freeze the key rate comes after a period of maintaining the policy rate unchanged since February of the previous year. However, the central bank has signalled a policy pivot this year amid moderating inflation and a slower-than-expected economic outlook.

BOK's Stance Amid Soaring Home Prices

This policy pivot could potentially involve a rate cut within the next three months, as suggested by BOK Governor Rhee Chang-yon. The central bank's decision to freeze the rate for the 13th straight session was influenced by soaring home prices. The BOK has continued to stand pat following rate freezes since February last year after delivering seven consecutive rate hikes from April 2022 to January 2023.

The central bank stated that inflation has continued its downward trend and the recovery in domestic demand has been modest. However, it still needs to further monitor how recent measures over the housing market are affecting home prices in Seoul and its surrounding areas and household debt.

The rate freeze comes at a time when household debt runs high in the face of a series of lending rate hikes and with tighter lending rules. Inflationary pressure in Asia's fourth-largest economy is showing signs of easing.

BOK's Future Plans and Economic Outlook

BOK Governor Rhee Chang-yon emphasized the need to deal with rising household debts and home prices immediately to ensure financial stability. He stated that Household debt should be considered for financial stability, and most board members see the need to curb rising real estate prices.

The BOK chief also revealed that four board members opened the door to a potential rate cut within three months, more than the two members in July. He added that Board members shared the view that any potential rate cut would come after government measures to rein in home prices work out.

The rate freeze also came as the central bank trimmed its growth projection for the year to 2.4 from its outlook of a 2.5 per cent expansion estimate in May. In May, the central bank jacked up its growth estimate to 2.5 per cent for the year, up from its earlier projection of 2.1 per cent, but slashed the 2025 growth outlook to 2.1 from 2.3 per cent.

In conclusion, the Bank of Korea's decision to freeze the key interest rate has sparked disappointment in the Presidential office due to concerns over its impact on domestic consumption. However, the central bank has signalled a potential policy pivot amid moderating inflation and a slower-than-expected economic outlook. The South Korean government plans to announce measures to address domestic demand, including ensuring the supply of essential goods for the Chuseok holiday. The rate freeze comes at a time when household debt runs high in the face of a series of lending rate hikes and with tighter lending rules. The central bank's decision to freeze the rate for the 13th straight session was influenced by soaring home prices. The BOK has continued to stand pat following rate freezes since February last year after delivering seven consecutive rate hikes from April 2022 to January 2023. The central bank stated that inflation has continued its downward trend and the recovery in domestic demand has been modest. However, it still needs to further monitor how recent measures over the housing market are affecting home prices in Seoul and its surrounding areas and household debt. The rate freeze also came as the central bank trimmed its growth projection for the year to 2.4 from its outlook of a 2.5 per cent expansion estimate in May. In May, the central bank jacked up its growth estimate to 2.5 per cent for the year, up from its earlier projection of 2.1 per cent, but slashed the 2025 growth outlook to 2.1 from 2.3 per cent. The country's exports are projected to increase 6.9 per cent this year, higher than its earlier estimate of 5.1 per cent, and private spending is likely to gain 1.4 per cent this year, slowing from its earlier projection of a 1.8 per cent advance. Construction investment is forecast to contract 0.8 per cent this year, compared with an earlier estimate of a 2 per cent dip. The country's current account surplus is expected to increase to $73 billion from an earlier estimate of $60 billion, according to the central bank. The bank cut its inflation outlook to 2.5 per cent for the year, from its earlier estimate of 2.6 per cent. The central bank's rate freeze followed the Federal Reserve's decision early this month to hold its benchmark lending rate steady at between 5.25 per cent and 5.50 per cent for the eighth consecutive time. Its chair said a rate cut could be on the table as soon as September if conditions are met.

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