April 19, 2016 – South Korea’s central bank kept interest rates untouched today, as expected, while observing the fallout from a parliamentary election earlier this month and the effects of policy measures in the major economies.
The Bank of Korea’s (BOK) monetary policy committee held its base rate steady at 1.50 per cent, a media official said without elaborating. Governor Lee Ju-Yeol is due to hold a news conference from 11:20 a.m. local time.
Twenty-one of the 27 analysts polled in a survey forecast the BOK would keep rates unchanged, but many predicted a cut in the coming months.
“If we see the momentum coming back in the second quarter compared to the first, I think the base rate will be kept steady throughout this year,” said Park Seok-gil, economist at JP Morgan Chase & Co.
“If consumer activity does not recover as expected in the second quarter, expectations for a rate cut may go up.”
Markets were mostly unchanged from previous levels after the Bank of Korea’s decision.
The won was trading flat at 1,145.00 to the dollar at 0100 GMT while June futures on three-year treasury bonds fell 0.06 points to 110.06. The Korea Composite Stock Price Index was up 0.5 per cent.
A steady majority of analysts has largely seen the central bank as likely to cut rates in the near-term to lend the torpid economy a further boost before additional rate hikes in the U.S. make it more difficult for the South Korean bank to act.
Krystal Tan, Asia economist at Capital Economics, said: “We think further easing is more likely than not in the coming months. The change to four of the BOK’s seven monetary policy board members after the April rate meeting could be the game-changer, as there appears to be a greater dovish bias among incoming members relative to outgoing ones.”
Ms Tan has a forecast for Korea’s policy rate to end the year at 1.25 per cent.
Last month, the BOK named four new candidates for its board as slowing economic growth and waning exports put the spotlight on monetary policy.
Kim Jina, fixed-income analyst at IBK Securities, agreed: “I predict that there will be a rate cut in June or July, more likely in June.”
She added: “Politics are likely to be a more important factor in the next decision. The fundamentals are already bad, the fact that there is a new national assembly and that May will be the first meeting after the change in members will be more important.”