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Bank of Korea Holds Interest Rate at 3.5%, Lowers 2018 Economic Growth Forecast to 1.4%

The Bank of Korea (BOK) has announced its decision to keep the policy rate unchanged at 3.5% for the third consecutive time, as expected. The move comes amidst a slowdown in exports and a decline in inflation.

This latest policy rate freeze marks the third time in a row, following the previous holds in February and April. The decision follows a series of seven consecutive rate hikes implemented by the BOK since April of last year.

The decision to maintain the policy rate has raised speculation that the BOK might cease tightening its policy rate, considering the signs of diminishing inflation and a decelerating economy.

In addition to holding the interest rate steady, the BOK has revised its economic growth forecast for South Korea for the year 2023. The new projection stands at 1.4%, down from the previous forecast of 1.6% issued three months ago. Despite this adjustment, the inflation forecast for the year remains unchanged at 3.5%.

April saw South Korea’s Consumer Price Index (CPI) experience its slowest growth in over a year, indicating a decline in inflation. The CPI, a crucial measure of inflation, rose by 3.7% in April compared to the same period last year. This marks a decrease from the 4.2% year-on-year increase recorded in March, representing the first time in 14 months that annual inflation has fallen below 4%.

While inflation has begun to decline, the South Korean economy is also exhibiting signs of a slowdown, primarily driven by a significant contraction in exports due to weakened demand in key markets. The decrease in export activity has had a considerable impact on the overall economic performance of the country.

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