Bank of Korea likely to stand pat, may downwardly revise growth projections

The Bank of Korea is likely to keep its policy rate on hold at 1.25 percent during its meeting tomorrow, according to a Societe Generale research report. The central government is expected to downwardly revise its 2017 GDP and inflation projections, although it is likely to keep a wait-and-see stance on the policy outlook. The Bank of Korea should consider the risks on the downside to growth and inflation that several MPB members have worried about to be shown in the forecast revision, noted Societe Generale.

The recent strength in the activity indicators, government’s relatively active fiscal policy and sustained concerns on financial stability should also add to a balanced approach. Thus the BoK is now expected to lower its interest rate in the second half of 2017 as compared with earlier projection in the first half.

“We continue to believe monetary easing will be necessary once the construction- and credit-led slowdown in economic growth has materialised”, added Societe Generale.

The December policy meeting minutes showed that most of the MPB members kept a dovish stance.  Out of six members, five acknowledged downside risks to the economic growth. In the quarterly review of the macroeconomic outlook, the central bank is expected to downwardly revise its 2017 GDP and inflation projections.

“We expect the GDP forecast to be revised down from 2.8 percent to 2.5 percent, and the inflation forecast to be cut from 1.9 percent to 1.6 percent”, said Societe Generale.