BOK to hold rates at 3.25%

The Bank of Korea (BOK) is expected to maintain its key policy rate at 3.25 per cent this week to support the Korean won against a strong US dollar, according to a majority of economists in a Reuters poll.

Economists predict at least three rate cuts next year due to concerns about potential inflation from US President-elect Donald Trump’s policies and the Russia-Ukraine conflict, which have boosted the dollar.

The won has depreciated by two per cent this month. That is expected to force the Bank of Korea to pause its easing cycle, which only started last month.

Economists believe the central bank will wait a few more months before resuming its easing cycle, despite inflation staying below the two per cent target since August and risks to an economy that narrowly avoided a recession last quarter.

In a survey conducted between Nov. 18 and Nov. 25, 34 out of 38 economists expect the bank to maintain the base rate at 3.25 per cent on Thursday, while four anticipate a 25-basis point cut.

“The recent depreciation of the won and heightened FX volatility – exacerbated by what some are calling ‘Trump trade’ – have likely added to the Bank’s caution,” said Jun-yeong Kim, economist at DS Investment and Securities.

The Federal Reserve’s hawkish stance on monetary policy has influenced global interest rates, causing the BOK to be cautious about cutting rates. The central bank may prioritise growth concerns and contemplate rate cuts once the won stabilises around the mid-1,300s against the dollar.

Attribution: Reuters

Subediting: M. S. Salama