Bank of Korea wrong-foots market with rate hold; questions raised on anti-inflation stance and bank NPLs

South Korea

The Bank of Korea wrong-footed market participants on May 12 by maintaining base rates at 3%. The move surprised in a market which is seen as being badly in need of inflationary controls, and had market participants guessing at the central bank's motives, as well as questioning its inflation-busting credentials. Headline consumer price index (CPI) inflation in South Korea is running at 4.2%, while the central bank's target range is between 2–4%. Core inflation currently stands at 3.2%.