Korea: Central Bank leaves rates unchanged in January
Latest bank decision: At its meeting on 16 January, the Central Bank decided to leave the base rate unchanged at 3.00%; market expectations were for a cut. This came after 50 basis points of rate cuts last year.
Monetary policy drivers: On one hand, rate hikes were not warranted due to stabilizing inflation and a slowdown in household debt. On the other, exchange rate volatility and increased uncertainty about the direction of the global economy discouraged the Bank from cutting rates further.
More easing to come: The Central Bank indicated that it will cut rates going forward, without saying precisely by how much. Our panelists see between 50 and 100 basis points of extra cuts this year, given that inflation is forecast to remain muted at below 2.0%.
Panelist insight: On the outlook, United Overseas Bank’s Ho Woei Chen said:
“We expect the next rate cut to be delivered at the 25 Feb meeting followed by one more cut in 2Q25. A more prolonged political crisis increases risk of a deeper interest rate cut to limit the economic fallout. Conversely, as markets start to price in a shallower rate cutting cycle in the US, this would constrain BOK’s room for monetary policy easing.”
ING’s Min Joo Kang said:
“We expect the Bank of Korea to resume interest rate cuts in February after confirming economic activity data for December and January. Even if the USDKRW climbs back, as long as the current political situation does not worsen and it is driven more by the global dollar strength, the BoK is likely to deliver a rate cut in February.”