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(Bloomberg) — The Bank of Korea paused interest-rate increases for the first time in a year as it tries to avoid compounding economic risks that range from falling exports to weakening consumption.

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The central financial institution saved its seven-day repurchase fee at 3.5% on Thursday as predicted by all-but one economist surveyed by Bloomberg. The outlier forecast a 25 basis-point hike amid expectations the Federal Reserve will quicken its tempo of tightening.

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The yield on South Korea’s three-year bond fell six foundation factors to three.6% following the choice. The received pared earlier beneficial properties to commerce down 0.1% at 1,305.20 towards the greenback.

Thursday’s choice displays concern amongst board members about fallout from the central financial institution’s 18-month tightening cycle. Korea’s financial system contracted within the closing three months of 2022, whereas home costs are declining quickly in a possible fear for credit score markets.

Consumption has been slowing within the wake of a crowd-crush in Seoul final fall and exports have begun to drop, with a document commerce deficit posted in January. A plunge in world semiconductor demand has additionally led producers to reduce manufacturing.

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Whereas most economists see 3.5% because the terminal fee within the present tightening cycle, the BOK has saved open the choice of an extra hike by stressing that it stays targeted on taming inflation.

The central financial institution offered its newest financial and inflation forecasts after the choice, displaying little change from November’s estimates. Financial progress for this yr was nudged all the way down to 1.6% from 1.7% and inflation to three.5% from 3.6%.

Governor Rhee Chang-yong’s press convention will begin shortly after 11 am in Seoul and markets shall be to know what number of board members dissented and during which path.

“The messaging in the course of the press convention is prone to stay comparatively neutral-to-hawkish,” Bum Ki Son, an economist at Barclays Financial institution, mentioned earlier than the choice. “Moreover, we anticipate some votes in favor of a fee hike — possible one or two, on condition that three members thought of a terminal fee greater than 3.5% within the January assembly.”

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Future strikes by the Fed might also issue into BOK considering in coming months. With inflation coming down extra slowly than beforehand anticipated, hypothesis is rising that the Fed could once more ramp up its tempo of tightening. That would additional gas a depreciation of the received.

The foreign money’s weakening was cited as an necessary driver of the BOK’s choice to execute larger-than-usual fee hikes final fall because the depreciation pushed up the price of meals and power imports.

Up to now this yr the received has been among the many strongest Asian currencies, eradicating a key supply of strain on the BOK to maintain tightening.

—With help from Tomoko Sato, Whanwoong Choi and Hooyeon Kim.

(Updates with market response, financial forecasts.)