Policymakers may be tempted to lower the rate to boost sluggish domestic demand, but high household debts will weigh on their decision, the person added.
The Board cut the policy rate 25bp when it last met in October. (See MNI BOK WATCH: Governor Cautiously Mulls Further Cuts) At the time, Rhee flagged the potential for further, timely rate cuts, noting additional easing would occur cautiously with a focus on financial stability and high house prices.
FURTHER EASING
The BOK is expected to lower the policy rate once more before March 2025, although whether the Board will cut the rate when it meets next on Jan 16 remains uncertain, noted another South Korean economic expert.
Market players will focus on how the governor refers to the outlook for monetary policy at the BOK's post-meeting news conference.
South Korea’s gross domestic product rose 0.1% q/q over Q3, the first growth in two quarters following -0.2% in Q2, showing a lack of economic momentum amid weak domestic demand. The country's exports rose 4.6% y/y in October for the 13th straight monthly rise and exports of semiconductors surged 40.3% for the 12th straight increase.
However, the first expert warned of the outlook for exports on the back of tepid profits. Real exports for Q3 posted their second straight drop in the wake of strong imports, he added. Shipments of IT-related goods remained solid but chemical and automobile sales remained sluggish, clouding steady export growth, he warned.
INFLATION FALLS
The U.S. Federal Reserve is considering slower rate cuts amid heightened uncertainty over inflation and next year's global trade, which will be influenced by President-elect Donald Trump's trade policies. The Fed’s policy stance will take pressure off further BOK policy-rate hikes alongside weaker inflation, the second person said.
South Korea’s consumer price index rose 1.3% y/y in October vs. 1.6% in September, for the lowest level since January 2021 when it rose 0.9%. (See chart)
Bank officials are worried about fund outflow due to the weaker won, although global currencies are being affected by the strong U.S. dollar, the first expert added. Policymakers, similar to other peer central banks, will likely take a wait-and-see attitude for some time due to the various uncertainties, he added.