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BOK holds fire for second consecutive meeting in April

At its meeting on 11 April, the Bank of Korea (BOK) kept the base rate unchanged at 3.50% for the second consecutive meeting. The decision was unanimous and matched market expectations.

The move was prompted by the BOK’s recent forecasts, which suggest that inflation will gradually move to the 2.0% target in the medium run. In addition, the BOK highlighted the high degree of uncertainty regarding the impact of recent rate hikes on both economic activity and financial stability amid turmoil in the global banking sector.

During a press briefing, BOK governor Rhee said that it was “still too premature to be certain” about the path of inflation and the policy rate. He suggested that “many” board members thought that market expectations of a rate cut this year were “excessive”.

10 out of 15 panelists polled by FocusEconomics expect the BOK to lower rates by the end of the year, with most expecting a 25 basis point cut in Q4. The Fed’s stance, the evolution of the won and oil prices amid OPEC+’s recent production cut are important factors to watch, while a sharper-than-expected economic slowdown and continued instability in domestic and global financial markets are downside risks.

The next BOK meeting is scheduled for 25 May.

ING’s Min Joo Kang expects a rate cut in Q4:

“We still expect the BoK to reverse its policy stance because inflation will fall slightly faster than the BoK forecast of 3.5% [average inflation in 2023] (INGf 3.3%) and economic growth will miss the BoK’s current forecast of 1.6% by far (INGf 0.7%).”

Analysts at ANZ said:

“Overall, we maintain our view that the BoK will keep its policy rate on hold for a prolonged period, with its next move a cut by Q1 2024. Clear signs that the Fed’s tightening cycle has ended and that domestic headline and core inflation are falling sustainably below 3% are among the conditions for an easing pivot by the BoK in our view.”