The Bank of Korea decided on Thursday to leave its policy rate at the current level of 1.75%. However, its hawkish policy stance has shifted to a neutral position.

The BOK lowered its GDP growth forecast by 0.1 percentage point to 2.5% from its projection in January and lowered its consumer price forecast by 0.3 percentage point to 1.1%.

Bank of Korea governor Lee Ju-yeol said in a press conference that “although the annual growth outlook has been revised slightly lower, the Bank of Korea’s monetary policy board has decided to keep its key interest rate at the current level, taking into account the likely signs of recovery in the future, more developments in external economic conditions such as global trade disputes and semiconductor business, and household debt.”

The central bank said the downward revision of this year’s growth forecast was inevitable because of sluggish first-quarter economic indicators. But it said the economy was expected to recover to its potential growth rate level in the second half of this year.

Consumer prices, which currently show a rise below 1% due to low supply-side inflationary pressure in oil, plus agricultural and fishery products, are also predicted to rise higher than 1% in the first half of this year, the BOK said.

Given the economic outlook, the central bank believes that a downward revision of the growth rate and lower inflation outlook are not factors that prompt a decision to make a rate cut.

Policy shifts to neutral

But despite the continued interest-rate freeze, there was a change in the central bank’s monetary-policy stance.

Governor Lee said: “At the moment, we are not in a situation where we are going to cut the key rate.” But he signaled a flexible stance on future monetary policy.

In the BOK’s press release on monetary-policy direction on the same day, two phrases were deleted. One was “normalizing eased monetary policy depends on economic growth and inflation.” The other was economic growth “does not deviate much from the level of potential growth rate.”

Asked if this suggests a change in policy stance, Lee said: “From now on, we need to wait and see how uncertainties in the external conditions will develop, and then the growth and inflation will be, rather than set the direction of future monetary policy in advance.

“But deleting these words doesn’t mean we’re going to consider a rate cut right away,” he said.

Asked whether he was still in a position under which the South Korean economy was not in a situation to consider cutting its policy rate, Lee said: “There has been no change so far.”

Although he reaffirmed that currently the central bank was not inclined to lower the policy rate, the remarks he made on Thursday indicate a slight difference in texture from remarks that Lee made at a press conference on April 1.

A source familiar with monetary policy told Asia Times that “what the central bank wants to communicate through today’s press conference is that its policy stance has turned to a neutral one from [one that was] hawkish.”