BOK likely to keep rates unchanged

The Bank of Korea (BOK) is expected to maintain its key policy rate at 3.50 per cent on February 22, according to a Reuters poll of economists, who anticipate the first rate cut may occur in the third quarter, Reuters reported.

Despite a decline in inflation to a six-month low in January, the majority of BOK board members believe that monetary policy should remain restrictive to bring inflation down to the bank’s 2.0 per cent target.

While Governor Rhee Chang-yong has cautioned against premature rate cuts reigniting inflation expectations, a cumulative 300 basis points of hikes between August 2021 and January 2023 could pose a significant threat to highly indebted households.

The poll of 38 economists indicated that interest rates are likely to remain unchanged until the end of June, followed by 25 basis-point cuts in both the third and fourth quarters.

The majority of economists expect the key policy rate to be at 3.25 per cent by September, with some forecasting further cuts in response to the U.S. Federal Reserve’s rate-cut cycle.