S. Korea to hold rates steady at 3.50% – poll

The Bank of Korea will likely maintain its key interest rate at 3.50 per cent for the 11th consecutive meeting on Thursday, according to a Reuters poll published on Tuesday. This decision comes despite strong export growth fuelling the economy’s fastest pace in over two years.

High inflation and a weakening Korean won, dropped down nearly five per cent this year, are prompting the central bank to hold off on rate cuts. Further currency depreciation would exacerbate inflation by increasing import costs.

While the global trend points towards easing monetary policy, the Bank of Korea is expected to lag behind. The European Central Bank (ECB) and the Federal Reserve are anticipated to cut rates in June and September, respectively.

Economists are divided on when South Korea may cut rates. Most expect no change until the third quarter, with a 50-basis point cut by year-end. While, some predict a cut by the end of the next quarter.

The Bank of Korea is unlikely to make a rate cut in the immediate future, but remains a possibility by year-end. The soft domestic outlook, despite strong exports, suggests a future rate cut is more likely than a hike.