MNI BOK WATCH: Slowing Inflation Puts Q4 Cut In Sight
The Bank of Korea will announce its policy decision on Thursday.
The Bank of Korea is likely to keep its policy rate unchanged at 3.50% at Thursday’s policy-decision meeting, with officials waiting for more evidence of a decline in inflation towards 2% before cutting the policy rate, observers told MNI.
Key for this meeting will be how Governor Rhee Chang-yong refers to the disinflationary trend, said someone familiar with South Korea’s economy and monetary policy, adding that a rate cut is widely expected for the fourth quarter.
South Korea’s consumer price index rose 2.4% y/y in June, down from 2.7% in May and 2.9% in April, marking the lowest level since July 2023 when it also rose 2.4%.
Rhee said in May that the Bank will consider lowering the interest rate if there is a confirmed trend for annual inflation slow to 2.3% to 2.4% in the second half of 2024.
Another observer noted that the governor had a hawkish policy stance at the previous meeting in May, but added that the BOK is likely to cut after having had time to observe the effect on the won from a likely Federal Reserve rate cut in September.
South Korea’s exports rose 5.1% y/y in June for a ninth straight rise, with semiconductor shipments making their eighth consecutive gain.
Demand for semiconductors is recovering around the globe, but South Korean private consumption, particularly of durable goods, remains weak as previous rate hikes increase the burden on heavily indebted households, the first person said.
The BOK may need to support domestic demand with lower rates but the Bank is wary of prompting more household borrowing, they added.