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Bank of Korea likely to keep monetary policy accommodative, adopt wait-and-see approach

The South Korean central bank, Bank of Korea kept its key interest rates on hold at 1.25 percent on Thursday, as was widely anticipated. It has kept its rates unchanged since lowering by 25 basis points in June 2016. The economy is on a strong footing with the central bank forecasting 2.8 percent growth this year. Meanwhile, inflation is likely to be contained at 1.9 percent which is within the central bank’s target of 2 percent.

As such, there are few reasons to alter policy either way at this stage, noted Commerzbank. The persistent geopolitical uncertainties related to the North Korea missile launches are causing the Bank of Korea to be cognizant of the downside risks to confidence and growth. The other risks underlined were the rate of Fed normalization, U.S. government policies, and the protectionism. On the domestic front, elevated household debt levels continue to be a concern and would deter the central bank from cutting rates further.

“Going forward, we expect BOK to keep monetary policy accommodative and to adopt a wait-and-see approach. For USD-KRW, it is slightly higher today around 1125 on the firmer USD tone overnight”, added Commerzbank.

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August 17 14:30 UTC Released

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