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BoK is expected to remain on hold for the rest of the year. It is believed that the market might have gone ahead of itself in expecting rate cuts for the following reasons:
- Won is much weaker now against the USD and the JPY. Moreover, the pace of the weakening has been a little too much as far as BoK is concerned. In fact, BoK has been intervening on the topside to smoothen the move higher in USDKRW.
- Another rate cut might also increase outflows from Korea, but BoK might not prefer that currently, given the lingering external risks (possible Fed hike, China FX).
- Finally, BoK might want to see the effect of the fiscal stimulus package (announced recently) on the domestic economy before it decides to cut or remain on hold.
