Bank of Korea likely to keep policy rate on hold in April

The Bank of Korea is set to meet next week for its policy rate decision. According to a Scotiabank research report, the South Korean central bank is likely to keep its policy rate on hold at 1.5 percent. In the month of March South Korea’s CPI inflation eased to 1.3 percent year-on-year from 1.4 percent year-on-year in the prior month, as compared with market projections of 1.4 percent.

Recently, BoK Governor Lee Ju-yeol said in a speech that the Bank of Korea would keep policy accommodative to underpin economic growth, and cautiously judge any policy adjustment after monitoring changes in the economy and financial stability. Moreover, Governor Lee said that it is difficult to make large rate hikes when potential growth is low.

March’s Nikkei South Korean Manufacturing PMI dropped to 49.1 from February’s 50.3, the most subdued reading in eight months. It can be linked to lingering externally uncertainty including rising trade protectionism risk. The gauge is expected to rebound moderately in the months ahead, noted Scotiabank. In the meantime, geopolitical situation on the Korean Peninsula is likely to remain under control.

“We maintain our short USD/KRW position targeting 1,050 for now, particularly if taking into account a side currency deal included in the revised US-S.Korea FTA and US Treasury Department’s semiannual FX policy report due mid-April. BoK Governor Lee Ju-yeol said Monday that it’s the BoK’s ground rule that the KRW exchange rate is determined by the market”, added Scotiabank.

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