The Bank of Korea is likely to keep its policy rate unchanged at 1.5% during its upcoming meeting. The meeting will mainly focus on the weakness in January's activity data. Also, there is a higher probability for another cut in GDP forecasts during the April meeting. But, t he rebounding sentiments in global financial markets and February's macroeconomic data will help the cautious stance of a majority of the MPC members.

The February's monetary policy meeting's minutes showed central bank policymakers' reluctance regarding further rate cuts, in spite of further decline in the outlook of growth. All members had agreed that there were growing threats on the downside for growth, but only one member had voted for a rate cut.  The other members didn't support a cut in interest rate because of the usual worries regarding financial stability, the requirement to secure the room for policy actions, the lack of further downside threats for inflation and the expected diminishing marginal impacts of additional easing actions.

January's activity data indicated broad weakening of growth momentum. The drop in manufacturing production was expected given the considerable decline in January exports. However, the contraction of retail sales and services production was a major concern because consumption was the main over GDP growth driver in H2 2015.

As facility investment did not strengthen in December, it was only construction activity that kept its strength amongst the different activity indices. However, strength in February's exports alleviated worries regarding growth. The renewed tax cut on autos will stimulate consumption as the retail sales contraction in January was mainly due to auto sales after the termination of tax cut in December. A considerable rise in February's headline inflation to 1.3% supports most of the MPC members' views that the central bank's current inflation forecast is appropriate.

The Bank of Korea is unlikely to change its policy rate throughout 2016. The unwillingness of MPC members regarding additional easing implies that the central bank is expected to keep rate unchanged even if the GDP forecast is revised downwardly from the current estimate of 3%.

Also, BoK's projection of potential growth in 2017 might be as low as 2.8%. Considerable surprises on the downside in growth, which can lead to a sizable reduction in the GDP growth forecast to a level of about 2% or below is expected to be a precondition for a further cut in interest rate.