South Korea: BoK forecast to keep rates unchanged in 2021 – UOB

Economist at UOB Group Ho Woei Chen, CFA, expects the Bank of Korea (BoK) to remain on hold this year.

Key Quotes

“The Bank of Korea (BOK) kept its benchmark Base Rate unchanged at 0.50% today, in line with consensus and our expectation. The central bank has been on hold since cutting the benchmark rate by 75 bps between March and May 2020. BOK governor Lee Ju-yeol said that the rate decision today was unanimous and reiterated that the central bank will maintain its accommodative monetary policy until the economic recovery is stable.”

“he upward revision in its 2021 inflation forecast is not expected to change BOK’s policy stance given that it continues to expect inflation to be well-anchored below its target of 2.0% in the next two years. Importantly, BOK’s GDP outlook for South Korea economy is unchanged at 3.0% in 2021 and 2.5% in 2022, indicating that the prospect of rate normalisation remains low for now. The growth forecasts may be raised slightly when the government’s extra budget is implemented.”

“An early withdrawal of policy accommodation is unlikely given the uncertainty of the economic recovery trajectory. We expect that consumption demand and labour market recovery will need to be in place before BOK is ready to raise interest rates. On the other hand, the rapid rise in household credit and property prices will continue to warrant attention from the policymakers. We maintain our forecast for BOK to stay on hold through 2021.”