The USD/KRW currency pair lost ground on Thursday, after the Bank of Korea kept borrowing costs intact for a ninth consecutive policy meeting, noting it required more time to assess changes in local and external conditions.
Meanwhile, Federal Reserve policy makers said they did not expect it would be appropriate to cut interest rates until they had gained greater confidence that inflation was approaching sustainably the 2% target.
The Bank of Korea left its base rate unchanged at a 15-year high of 3.5% at its February meeting, in line with market expectations.
Whereas domestic inflation continued to ease, BoK policy makers cited persistently high household debts and a slump in the property market.
South Korea’s headline inflation is forecast to remain around 2.6% in 2024, while core inflation is projected at 2.2%.
At the same time, FOMC policy makers expressed concerns over the risks of reducing interest rates too early, the minutes of the Federal Reserve’s January 30th-31st policy meeting revealed.
“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained” to navigate inflation back down to the Fed’s 2% objective, the minutes stated.
While “most participants noted the risks of moving too quickly to ease the stance of policy,” only “a couple … pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.”
Some policy makers saw a risk that progress on inflation could stall in case the US economy continued to demonstrate the strength it has already shown.
Markets are now pricing in about a 30% chance that the Federal Reserve could start cutting interest rates in May. That compared with a more than 80% chance priced a month earlier.
As of 8:53 GMT on Thursday the USD/KRW currency pair was retreating 0.64% to trade at 1,324.54.
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