Bank of Korea keeps interest rates on hold, economy to grow 3 pct in 2018

The Bank of Korea kept its key interest rates on hold at 1.5 percent today during its policy meeting. However, the statement was more dovish than expected. Korean economic growth is likely to reach 3 percent in 2018, driven by private consumption and external sector, noted Commerzbank in a research report. But the Korean central bank expressed lingering worries over sluggish employment conditions. This might have led to the BoK’s dovish bent especially as it expects inflation to stay contained at the mid-1 percent level for some time.

The Bank of Korea expects inflation to reach 1.7 percent this year which is lower than its 2 percent target for 2016-2018. But one complication for BoK is capital outflows due to widening interest rate differential.

The BoK was first to raise its interest rates in Asia last November and the move was followed by Malaysia, the Philippines, and most recently, Indonesia.

“USD year-to-date and compared to other emerging market currencies, this is not too bad but as long as the US-Korea spread continues to widen, our bias is to the upside for USD-KRW”, added Commerzbank. 

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