Korea: Bank of Korea decides to hold rates in May
At its meeting on 23 May, the Monetary Policy Board of the Bank of Korea decided to keep the Base Rate unchanged at 3.50%.
The decision not to cut interest rates was primarily influenced by inflation which is still above the Central Bank’s 2.0% target. Moreover, the Bank judged upside inflation risks to have increased due to exchange rate volatility and faster economic growth. On the flipside, further monetary tightening was not warranted given that both headline and core inflation have trended down in recent months, despite remaining above the Central Bank’s target.
The Central Bank indicated that it will maintain a restrictive monetary policy stance for a sufficient period until it is confident that inflation will converge on the target level. Most of our panelists now only expect rate cuts to ensue from Q4 this year, with between one and two 25-basis-point cuts expected by end-2024.
Goldman Sachs analysts are at the more dovish end of our panel:
“We continue to expect BOK to start its cutting cycle with a 25bp cut in Q3 […]. While our baseline scenario remains for the start of easing in July, it would be a close call with August as an alternative, depending on the pace of disinflation over the summer, changes in monetary policy directions of major central banks, and exchange rates of the Korean won.”
In contrast, Nomura analysts see the Bank on hold for longer:
“We maintain our forecast for a 25bp cut in October and two 25bp cuts in 2025, which would take the policy rate to 2.75% from the current 3.5%.”