Bank of Korea is expected to remain on hold at its monetary policy meetings scheduled to be held on Aug 11. The BoK is expected to adopt a wait-and-see approach to review the impact of the latest rate move on bank lending and asset prices.
The central bank is widely expected to freeze the benchmark rate at 1.25 percent on Thursday’s meeting. A 25 basis point rate cut has been delivered only two months ago in June. Meanwhile, the government has just submitted a supplementary budget to the Parliament for approval at the end of last month. Policymakers may want to allow time for the fiscal stimulus measures to be implemented and take effect, DBS reported.
Further, the economy is showing some signs of a modest recovery, which also reduces the need for looser policies in the near term. GDP growth picked up to 2.9 percent q/q, on a seasonally adjusted annual rate in the second quarter, from 2.1 percent during the second quarter.
Moreover, private consumption and investment both rebounded, as evidenced by a set of indicators including retail sales, services output, equipment investment and construction output. Manufacturing PMI has returned to the neutral level of 50 since April and stayed above the mark for four consecutive months as of July.
However, headwinds still persist for the second half of this year given the government’s push for corporate restructuring in certain industries, implementation of an anti-corruption law in September and the persistence of external uncertainties.
Meanwhile, the BoK has taken into account these risks when cutting rates preemptively in June. Unless the upcoming data deteriorate more than expected and/or new risks emerge, the BoK may not rush to further ease policy, the report said.
