BoK likely to leave policy rate unchanged at 1.25 pct, says Scotiabank

The Bank of Korea (BoK) is expected to leave its policy rate unchanged at 1.25 percent on Thursday morning, seeking a balance between the nation’s financial stability and economic growth. The household indebtedness has weighed on private consumption, while posing an increasing risk to the nation’s financial system.

The central bank will likely stay cautious on the nation's growing household debt and hovering geopolitical tensions. BoK Governor Lee Ju-yeol on Monday told lawmakers that there has been no request from the government to increase the key interest rate. However, while the central bank is widely expected to stay on hold tomorrow, we think any hawkish comments from the BoK’s board members would certainly spark market concern over a 25 basis points rate hike in October.

Governor Lee also criticized recent comments by a presidential aide that the low key rate is problematic, telling lawmakers that the comments undermined the confidence on the central bank's Monetary Policy Board according to Yonhap News.

"In the months ahead, the KRW will remain susceptible to external uncertainty including global liquidity conditions and geopolitical situation on the Peninsula, range-trading along with swinging risk sentiment due to North Korea’s provocation. Geopolitical tensions remain the Achilles’ heel of the local currency," Scotiabank commented in its latest research report.

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