To Remain Restrictive Until Confidence In Attaining Inflation Target Is Established

The BoK kept rates unchanged as widely expected, leaving the policy rate at 3.50%. The accompanying BoK statement lent slightly hawkishly, although it is likely within broad market expectations.

• Not surprisingly, 2024 growth forecasts were revised higher to 2.5% from 2.1% made in February. This followed the strong Q1 growth beat. Consumption growth is expected to pull back in Q2 before following a steady recovery path in H2. Exports are expected to remain a key driver of growth. 2025 growth was revised down to 2.1% from the 2.3% projection made in February.
• There were no changes to the headline inflation forecasts (at 2.6% this year, 2.1% next year), while core inflation for 2024 was also left unchanged at 2.2%.
• Upside risks to inflation prevail from the stronger growth backdrop but they are not expected to be strong given the modest consumption recovery. High uncertainty remains around the inflation outlook, with oil prices, FX trends, food price shifts and underlying growth all highlighted as risk factors.
• This backdrop leaves the central bank still lacking confidence that inflation will return to the 2% target level. In turn the central bank stated policy will be held restrictive for a sufficient period of time until such confidence is established.
• This should push back against any near term easing expectations. Coming up shortly we have BoK Governor Rhee's press conference.