Bank of Korea Expected to Hold Rate at 3% After Two Increases

The Bank of Korea is expected to hold its benchmark rate at 3% on Oct. 22 after two increases, leaving inflation and household debt central to its November decision.

South Korea’s central bank raised the base rate by 0.25 percentage point in July and again in August, taking it from 2.5% to 3%. All 24 economists in a premeeting poll expect the bank to leave it there Thursday.

Separate surveys point to a later move. Eighteen of 20 respondents in one survey expect a November increase, as do eight of 11 in another. A further quarter-point increase would bring the rate to 3.25%. The bank’s next rate-setting meeting is Nov. 26.

A pause would give policymakers more time to assess the effects of the two increases. The semiconductor boom has supported growth and could add to demand-driven inflation. The bank also expected inflation to remain above its target for a considerable time.

Consumer prices rose 2.9% from a year earlier in September, easing from 3.1% in August but remaining above the bank’s 2% target. Core inflation, which excludes food and energy, slowed to 2.8% from 3.4%. Part of the August reading reflected a year-earlier discount on mobile phone service that lowered the comparison base.

September’s core reading was still above July’s 2.6%. At an Oct. 12 parliamentary hearing, the governor said tighter policy places a heavier burden on low-income borrowers.

Strong semiconductor exports have supported growth, while rising home prices around Seoul and household debt remain financial stability concerns. Those pressures help explain why expectations of an October pause coexist with forecasts for another increase in November.

The board’s formal rate projections now look six months ahead and are released in February, May, August and November. None is scheduled for October. Thursday’s vote, any dissent and the governor’s remarks will provide the next indication of how policymakers view a November increase.