Korean brokerages see BOK stand between hawkish and dovish monetary policy

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While the Bank of Korea (BOK) has chosen to maintain the current base rate at 3.5 percent, marking its fifth pause in rate hikes since February, analysts from South Korean brokerages perceive this decision as adopting a neutral stance. They hold an anticipation that a rate reduction might be enacted in the second quarter of next year. Market insiders said the central bank‘s latest action is positioned between hawkishness and dovishness.

“The decision by the Monetary Committee of the BOK was neutral amid unaddressed uncertainty surrounding the U.S. monetary policy,” said Ahn Ye-ha, an analyst at Kiwoom Securities Co.

“With the move leaving room for further macroeconomic measures to rising household debt, the BOK’s mention of unanimous consent among the six committee members in favor of a further hike to 3.75 percent can be seen as a hawkish stance,” Ahn explained.

“However, the central bank acknowledged in a dovish stance that the economy faces a higher level of uncertainty.”

“The statements made by BOK Governor Rhee Chang-yong during the press briefing represented a mix of hawkish and dovish stances,” said Kim Ji-man, an analyst at Samsung Securities Co.

Kim pointed to instances of a hawkish stance, such as remarks made by Governor Rhee, indicating that “the likelihood of finance costs remaining as low as they have been over the past decade, nearly zero, or even within the range of 1-2 percent, for an extended period is slim.”

However, Kim added that the comments seen as dovish included ones like “South Korea‘s real interest rate surpasses that of most other developed economies, not including the U.S.”

Some market experts rated the recent rate policy as closer to dovish.

“As expected, the BOK hasn’t implemented a more stringent monetary policy compared to July, and instead indicated a chance of future easing adjustments in the stance,” explained Ahn Jae-gyun, an analyst at Shinhan Investment & Securities Co.

“Governor Rhee at least didn‘t refute an alleged shift of policy toward growth in response to series of gradual downgrading in economic forecasts.”

There has been a consensus among market insiders that the central bank will likely deliver a rate hike in the second quarter of 2024.

“Rhee’s remarks that prioritized financial stability over the overall economic conditions, with a strong determination to find a way to deleverage household debt may portend a delay of rate cuts,” Cho Yong-gu, an analyst at Shin Young Securities Co., who expected the first rate cut to take place at the next second quarter over a span of two annual cuts of 50 basis points.

“If the financial authorities persist in their current approach to assessing the economy and addressing household debt, there exists no imperative to implement rate cuts in a hasty way,” projected Kim Ji-na, a market expert at Eugene Investment Co.