The Bank of Korea is likely to keep its policy rate on hold at 1.25 percent on Thursday during its policy meeting, and by a unanimous decision, according to a Societe Generale research report. Policymakers are expected to become quite concerned regarding the several uncertainties in the growth outlook, though they would greatly maintain their recent wait-and-see stance of additional policy actions.
Increasing political uncertainties surrounding the scandal over President Park and the possible negative impacts on the housing market and construction from the rise in market interest rates set off by the election of Donald Trump are the two main concerns regarding the near-term economic outlook, while the recent activity data has been mixed, stated Societe Generale.
It seems to be too early to implement monetary easing during this juncture, considering the usual worries regarding household debt and capital outflow. However, the BoK is expected to opt for additional policy rate cuts when the slowdown in growth momentum from those two concerns becomes clear, probably in early 2017, added Societe Generale.
The November policy meeting minutes indicated that effectively all the board members felt increased uncertainties regarding growth. Concerns regarding U.S. trade protectionism following the Trump victory topped the list of external uncertainties, noted Societe Generale. Meanwhile, most board members have become quite confident about their outlook for higher headline inflation in 2017.
