BOK to stand pat this quarter, cut 50 bps in the second half – Reuters poll

By Thomson Reuters Apr 8, 2024 | 7:41 PM

By Anant Chandak

BENGALURU (Reuters) – The Bank of Korea will keep its key policy rate unchanged for a 10th straight meeting on Friday but was expected to embark on a shallow cutting cycle next quarter as inflation remains elevated, a Reuters poll of economists found.

While inflation moderated to 3.1% in March from a peak of 6.3% in July 2022 it was still higher than the central bank’s 2% target, suggesting a cut to interest rates was not imminent.

All 39 economists in the April 3-8 Reuters poll expected the BOK to leave the base rate unchanged at 3.50% on April 12.

A strong 86% majority of economists, 31 of 36, expected rates to remain at the current level until at least end-June.

“The monetary policy board is expected to freeze the base interest rate. It is expected to be a unanimous decision, while market participants are also keen to see whether there will be more board members arguing for the need for interest rate cuts,” said Ji-man Kim, an economist at Samsung Securities in Seoul.

“More countries starting to discuss interest rate cuts may have an impact on domestic monetary policy.”

The central bank will probably not cut interest rates this year despite growth momentum not being robust as the battle against inflation was far from over, former Deputy Governor Lee Seung-heon told Reuters in an interview on Monday.

However, median poll forecasts showed the BOK cutting rates by 25 basis points in Q3 and Q4, ending the year at 3.00%.

The U.S. Federal Reserve and the European Central Bank will cut rates by 75 basis points in 2024, according to market expectations.

“There are signs policymakers are becoming more concerned by the economic outlook. While exports have picked up in recent months, domestic demand has been much weaker, with consumer spending struggling badly,” said Shivaan Tandon, emerging Asia economist at Capital Economics.

“The BOK is also keeping an eye on interest rate differentials…by July – particularly if we’re right that the U.S. Fed will have begun its easing cycle by then – we think the BOK will be ready to move.”

(For other stories from the Reuters global economic poll: nL5N3GE2QG)

(Reporting by Anant Chandak; Polling by Susobhan Sarkar and Devayani Sathyan in Bengaluru and Jihoon Lee in Seoul; Editing by Jonathan Cable, Hari Kishan and Andrea Ricci)