Korea: Bank of Korea leaves rates unchanged in August
Latest bank decision: At its meeting on 22 August, the Monetary Policy Board of the Bank of Korea decided to leave the Base Rate unchanged at 3.50%.
Monetary policy drivers: Despite the continued downward trend in inflation and a merely modest recovery in domestic demand, the Bank highlighted that it wished to monitor global market sentiment as well as the effects of recent government measures to cool the housing market and rein in household debt before embarking on rate cuts.
Policy outlook: The Central Bank suggested it would cut rates ahead, but did not say precisely when. All of our panelists expect rate cuts to begin in Q4. Virtually all panelists see a single 25-basis point cut in the quarter, before further monetary easing next year.
Panelist insight: On the outlook, ING’s Min Joo Kang said:
“It is unlikely that house prices will have stabilised by October because, despite the recent tightening of macroprudential measures, it will take some time to rein in household debt and homebuyer’s sentiment. However, Governor Rhee emphasised that house prices themselves are not a target for monetary policy, so this will remain a concern but will not stop the BoK from easing. Also, inflation is likely to come down below the 2% target level for the next couple of months, and financial markets will probably have digested the Fed’s rate action by the next BoK meeting. Consequently, we think the macro conditions will support a BoK rate cut in October.”