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Bank of Korea likely to stand pat in January

The Bank of Korea is set to meet this weekend for its interest rate decision. According to a DBS Bank research report, Korean central bank is likely to keep rates on hold at 1.5 percent. The slowdown of economic growth in the fourth quarter and the deceleration of the headline inflation to below 2 percent should ease the urgency for the central bank to hike rates again after November’s move.

Focus is expected to be on BoK’s quarterly economic outlook report. The 2018 GDP growth projection is expected to be kept unchanged at 2.9 percent. However, inflation projection is likely to be trimmed from the present 1.8 percent, given the faster-than-expected slowdown in food prices of late and the high base effect. A downward revision in inflation projection should help convince investors that the central bank would hike rates gradually in 2018, stated DBS Bank.

Meanwhile, the central bank is expected to reiterate its stance that the exchange rate is determined by market forces; however, the authorities would take action when herd behavior arises.

“From a fundamental perspective, the adverse impact of a strong KRW on exports may not be a big worry for the time being, given the ongoing recovery in global demand and the synchronised appreciation in Asian currencies”, added DBS Bank.

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