BOK expected to hold rate at 3.5% this week amid economy concerns

The Bank of Korea [Courtesy of BOK]

South Korea’s central bank is widely expected to keep the policy rate unchanged for a second straight month at 3.5 percent this week as concerns over the slowing economy come ahead of the growing inflationary pressure.

According to multiple sources from the financial industry on Sunday, the Bank of Korea (BOK) will not likely raise the base rate during a monetary policy committee meeting on Tuesday. The last time the BOK kept the rate twice in a row was in July 2021. The central bank raised the benchmark rate by a total of 3 percentage points from August 2021.

The expectations come despite the growing inflationary pressure from an unexpected cut in oil production announced by a group of oil exporters, or OPEC Plus, and China’s reopening of its economy. Korea’s consumer price growth has also slowed in March at 4.2 percent.

“We expect the BOK to freeze the rate given that the country’s inflation gained at a slower pace last month, although the rate gap with the U.S. is still wide,” said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute. “It will also take into account that businesses and households are facing financial difficulty.”

Societe Generale, a French-based multinational financial institution, also said in a latest report that the Korean government’s decision to delay a rise in public utility fees represents a strong signal that the BOK will not raise the policy rate.

Korean brokerage houses also note that the BOK is highly likely to consider the expectations that the U.S. Federal Reserve will ease its monetary tightening in the aftermath of a series of failures of global banking chains, including Credit Suisse.

“Concerns over the acceleration in the Fed’s tightening move and inflation have eased, raising expectations toward an eased monetary tightening by the BOK,” said Cho Yong-ku, an analyst at Shinyoung Securities Co.