The Bank of Korea (BOK) yesterday kept its benchmark interest rate unchanged and said it intends to keep policy restrictive to combat inflation even with the economy set to slow more than previously expected this year.
The central bank held its seven-day repurchase rate at 3.5 percent, as forecast by economists. Unlike in February, the latest decision was unanimous, an outcome that points to growing concern among board members over the risks for the economy.
Still, Governor Rhee Chang-yong ruled out the possibility of a rate cut for now despite expectations among market players for a move in that direction later this year.
Photo: Bloomberg
“Many board members are thinking that market expectations may be excessive,” Rhee said at a briefing after the decision. “The majority opinion among the board is that the financial sector has excessively priced in expectations for monetary policy abroad.”
South Korea faces an awkward combination of slowing economic activity and continued high consumer price growth. That would likely keep the central bank standing pat as it monitors the situation, with the view that prices would probably cool sufficiently to avoid any more rate hikes.
While Rhee again indicated that five members of the board want to leave open the possibility of raising rates, the BOK is widely seen as having reached the end of a tightening cycle that began in August 2021.
“The central bank is likely to hold the policy rate at 3.5 percent for the rest of the year,” Moody’s Analytics economist Eric Chiang said after the briefing.
Reinforcing that view is an export slump that is set to weigh on South Korea’s economic growth. The country’s GDP shrank in the final quarter of last year and likely struggled in the first three months of this year.
GDP growth this year is likely to be slightly below February forecasts of 1.6 percent, the central bank said.
The BOK has also flagged the effects of recent financial turmoil.
“New uncertainties have emerged since the previous policy decision,” Rhee said, citing the banking jitters sparked by the failures at Silicon Valley Bank (SVB) and Credit Suisse Group AG.
“SVB has thrown cold water on expectations for economic growth in not only the US and Europe but also in Korea,” Rhee said.
Last week, the central bank pointed to greater volatility in prices ahead after OPEC+ announced an oil production cut, even as domestic inflation slowed.
With domestic growth still weak, inflation easing, and the risks of a hawkish US Federal Reserve diminishing, the pressure on the BOK to hike rates is continuing to fade, said Khoon Goh (吳昆), head of Asia research at Australia and New Zealand Banking Group in Singapore.
“At the same time, with inflation expectations still elevated and uncertainties surrounding the pace of the inflation slowdown high, the central bank is likely to continue pushing back against expectations for a quick easing pivot,” he said.
Taiwan’s technology protection rules prohibits Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) from producing 2-nanometer chips abroad, so the company must keep its most cutting-edge technology at home, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. Kuo made the remarks in response to concerns that TSMC might be forced to produce advanced 2-nanometer chips at its fabs in Arizona ahead of schedule after former US president Donald Trump was re-elected as the next US president on Tuesday. “Since Taiwan has related regulations to protect its own technologies, TSMC cannot produce 2-nanometer chips overseas currently,” Kuo said at a meeting of the legislature’s
TECH WAR CONTINUES: The suspension of TSMC AI chips and GPUs would be a heavy blow to China’s chip designers and would affect its competitive edge Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, is reportedly to halt supply of artificial intelligence (AI) chips and graphics processing units (GPUs) made on 7-nanometer or more advanced process technologies from next week in order to comply with US Department of Commerce rules. TSMC has sent e-mails to its Chinese AI customers, informing them about the suspension starting on Monday, Chinese online news outlet Ijiwei.com (愛集微) reported yesterday. The US Department of Commerce has not formally unveiled further semiconductor measures against China yet. “TSMC does not comment on market rumors. TSMC is a law-abiding company and we are
FLEXIBLE: Taiwan can develop its own ground station equipment, and has highly competitive manufacturers and suppliers with diversified production, the MOEA said The Ministry of Economic Affairs (MOEA) yesterday disputed reports that suppliers to US-based Space Exploration Technologies Corp (SpaceX) had been asked to move production out of Taiwan. Reuters had reported on Tuesday last week that Elon Musk-owned SpaceX had asked their manufacturers to produce outside of Taiwan given geopolitical risks and that at least one Taiwanese supplier had been pushed to relocate production to Vietnam. SpaceX’s requests place a renewed focus on the contentious relationship Musk has had with Taiwan, especially after he said last year that Taiwan is an “integral part” of China, sparking sharp criticism from Taiwanese authorities. The ministry said
US President Joe Biden’s administration is racing to complete CHIPS and Science Act agreements with companies such as Intel Corp and Samsung Electronics Co, aiming to shore up one of its signature initiatives before US president-elect Donald Trump enters the White House. The US Department of Commerce has allocated more than 90 percent of the US$39 billion in grants under the act, a landmark law enacted in 2022 designed to rebuild the domestic chip industry. However, the agency has only announced one binding agreement so far. The next two months would prove critical for more than 20 companies still in the process
RSS