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MNI BOK WATCH: Board To Consider Hold At 3.5%, Inflation In Focus

(MNI) TOKYO

The Bank of Korea monetary policy board will strongly consider holding its policy rate at 3.50% following Friday’s meeting as the bank continues to pay close attention to still stubborn inflation.

Focus will shift to whether BOK Governor Rhee Chang-yong will maintain his vigilance over the inflation outlook, while carefully weighing the risk of a slower economy and rising household debt, according to a person familiar with South Korea's economy and monetary policy.

The BOK will likely not flag the possibility of near-future rate cuts thanks to the sticky inflation rate, which rose 3.1% y/y in March, unchanged from 3.1% in February. (See chart) Prices for crude oil-linked goods rose 1.2% for the first y/y rise since January 2023.

The BOK has held the policy rate at 3.5% since January 2023. The governor ruled out premature rate cuts when the board last met in January, but stressed the need for further hikes had decreased. (See MNI BOK WATCH: Governor Rules Out Premature Cuts, Holds Rate)

RATE-CUT EXPECTATIONS

Another person familiar with the BOK said market players expect the Bank to cut the policy rate as early as Q3, however, policymakers believe any rate cut talk is still premature.

The economy will likely not weaken further as demand for semiconductors and their-related goods is recovering. Exports rose 3.1% y/y in March for the sixth consecutive month, thanks to the increase of exports of semiconductors for the fifth consecutive month and for the highest level in 21 months.

Heightened uncertainty over U.S. Federal Reserve rate cuts also persists, making it difficult for the BOK to ease ahead of any American move.

The BOK in February maintained its growth projection at 2.1% for 2023 and its inflation projection at 2.6%.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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