BoK Preview: Forecasts from four major banks, first pause in a year

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Thursday, February 23 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of four major banks. 

BoK is expected to keep rates steady at 3.5%. At the last meeting on January 13, the bank hiked rates by 25 basis points to 3.5%. 

ING

“We believe that the BoK’s rate hike cycle ended with the 25 bps hike in January. But given that January's consumer price index picked up again, we are expecting the BoK to maintain its hawkish stance.”

Standard Chartered

“We expect the BoK to keep the base rate at 3.5%. We expect the BoK to stop hiking and monitor the impact of previous hikes on economic growth and inflation. Despite inflation and growth concerns, we think the BoK will stay on hold as it waits to assess whether January CPI inflation was a one-time shock driven by the recent increase in oil and gas prices. Moreover, declining housing prices and an inactive property market may provide an additional reason to stay on hold this month.”

ANZ

“We expect the BoK to keep the policy rate on hold at 3.50%, marking its first pause in a year. The weak economic backdrop supports the case for a rate hold. The KRW has come under some downward pressure in recent weeks, but the correction has been fairly mild; coupled with reasonably stable energy prices, that would cap upside risks to imported inflation. Admittedly, continued tightening by the US Fed means that rate differentials with the US will become more unfavourable. However, improving terms of trade and likely World Government Bond Index (WGBI) inclusion should provide some buffer to the overall balance of payments and give the BoK more scope to prioritise domestic conditions. Overall, we continue to expect BoKwill embark on a prolonged rate pause.”

SocGen

“The BoK is expected to keep rates unchanged at 3.50%. Concerns about growth by policymakers appear to outweigh worries over inflation and capital outflows, which has already led to a decline in market interest rates. Although the policy statement is likely to reiterate that the BoK will maintain its tightening stance, a decision to hold the policy rates will effectively support our view that the rate-hike cycle had already ended in January. We expect one dissenting member to vote for a 25 bps hike. We also believe that the view of policy board members on terminal rates will continue to be evenly split at between 3.50% and 3.75%.”