People walk on a zebra crossing in front of the Bank of Korea building in Seoul, South Korea. REUTERS/Kim Hong-Ji/File photo
BENGALURU – The Bank of Korea (BOK) will keep its key policy rate unchanged at 3.5 percent on Thursday and for the rest of the year as inflation continues to ease, a Reuters poll of economists predicted, but forecasts rate cut plans were delayed by a quarter until early 2024.
While inflation in major economies remains elevated, prompting the US Federal Reserve and European Central Bank to tighten, it fell to a 21-month low in South Korea last month, bringing it closer to the central bank’s 2 percent target.
That’s good news for the BOK, one of the first to start raising rates in August 2021, which halted tightening in February as its full 300 basis point hikes hit an economy with some of the most indebted households. of the world.
The 46 economists taking part in the Reuters survey from July 4 to 10 expected no change at the end of the BOK meeting on July 13 to the 3.5 percent base rate, the highest since late 2008.
“With monetary policy settings already in tight territory, inflation declining and the KRW (Korean won) stabilizing, there is little momentum for the central bank to raise rates further,” said Irene Cheung, senior strategist at Asian in ANZ.
“That said, with the US Fed remaining dovish and domestic inflation expectations elevated, we believe the BOK will continue to push back expectations of a quick easing turn.”
Bank of Korea warns upside risks to core inflation
Median forecasts showed interest rates would remain unchanged through the end of this year, followed by a 25 basis point cut in the first quarter of 2024.
In a May survey, the quarter-point cut was expected to come by the end of 2023.
The Bank of Korea is expected to hold rates until the end of September, cutting them in the fourth quarter
The BOK’s stance is likely to put pressure on the won, which is already down 3 percent against the dollar this year.
But a rate cut will depend on how fast inflation falls. It is not expected to fall below the central bank’s 2 percent target until the third quarter of next year, averaging 3.3 percent this year and 2.1 percent next.
The survey also forecast South Korea’s economy to grow 1.2 percent this year and 2.3 percent in 2024, the same as the previous survey.
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