BOK to hold base rate at 3.50% on Thursday, rate cut call pushed to 2024: poll

ECONOMISTS in a Reuters poll predicted that the Bank of Korea (BOK) will keep its key policy rate unchanged at 3.5 per cent on Thursday (Jul 13) and for the rest of the year.

But the respondents’ rate cut forecasts were pushed back by a quarter, to early 2024.

While inflation in major economies remains elevated, prompting the US Federal Reserve and European Central Bank to pursue policy tightening, it fell to a 21-month low in South Korea last month, bringing it closer to the central bank’s 2 per cent target.

That is good news for the BOK, one of the first to start raising rates in August 2021.

The central bank had paused tightening in February, as its hikes totalling 300 basis points weighed on an economy with some of the most heavily indebted households globally.

All 46 economists in the Reuters poll expected no change to the 3.50 per cent base rate at the conclusion of the BOK’s meeting on Jul 13. The rate is already the highest since late 2008.

“With monetary policy settings already in restrictive territory, inflation easing and the (Korean won) stabilising, there is little impetus for the central bank to hike rates further,” said Irene Cheung, senior Asia strategist at ANZ.

“That said, with the US Fed still hawkish and domestic inflation expectations elevated, we believe the BOK will continue to push back expectations for a quick easing pivot.”

Median forecasts showed that interest rates would remain on hold until the end of this year, followed by a 25-basis-point cut in the first quarter of 2024.

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In a May poll, the cut was expected to come by end-2023.

The BOK’s stance is likely to put pressure on the won, already down about 3 per cent against the US dollar this year.

But a rate cut will depend on how quickly inflation falls. It was not forecast to drop below the central bank’s 2 per cent target until the third quarter of next year, averaging 3.3 per cent this year and 2.1 per cent next.

The survey also predicted that South Korea’s economy would grow 1.2 per cent this year and 2.3 per cent in 2024, the same as in the previous survey.