BoK On Hold As Expected

The Bank of Korea kept rates on hold at 0.50% as expected by all economists surveyed. BoK Gov. Lee Ju-yeol has warned previously that loose monetary policy following the onset of the pandemic risks taking household debt to unsustainable levels.

• BoK is scheduled to start a press conference around 0210GMT/11:20KST, focus will be on the possibility of dissent from any board members with the outside risk of a dovish dissent given weak employment and low inflation. Markets currently predict the next action from the BoK will be a hike, but not until late 2022.
• If Gov. Lee Ju-yeol indicated the board is more concerned over financial imbalances and a possible bubble, that could indicate a propensity to a move ahead of market expectations. The inverse is true given the third wave of coronavirus currently being dealt with by South Korea, if the pandemic related drag on the economy is worse than expected the BoK could indicate a willingness to maintain easy monetary conditions for even longer.
• Markets will also watch for indications on future bond purchases. There is speculation the BOK will expand unconventional measures in future to lower long-term interest rates, although some board members continue to be concerned about financial imbalances, including the rise in real estate prices.
• The bank specifically targets financial and FX market stabilisation and purchased KRW 11tn of KTB's in 2020 to this end. The bank currently holds around 39.8% of total domestic assets on its balance sheet. It is worth keeping in mind that the government has front loaded the budget for the first half of 2021, which would suggest purchases will also be front loaded.