BoK likely to keep policy rates steady on slow economic growth, to adopt dovish bias

The Bank of Korea (BoK0 is expected to keep policy rates on hold, following slower economic growth amid increasing political risks and continuous expansion of household debt. However, it is likely to adopt a dovish bias in the upcoming monetary policy meeting scheduled to be held on Friday.

To add on to the worries, the monthly trade and manufacturing data came in weaker than market anticipations during the month of October, following domestic headwinds and a massive recall by Samsung, due to the safety issues concerned with its signature brand Galaxy Note 7.

Moreover, the ongoing political crisis, following the President’s confidante scandal has hurt public sentiment and increased the risk of political instability. President Park reshuffled the cabinet and delivered the second apologetic speech last week, but still failed to quell the public anger. Her approval rating plunged further to 5 percent, from 17 percent a week ago, according to the Gallup survey released on November 4.

Further, the headline as well as the core consumer price index rose to 1.3 and 1.5 percent respectively in October, both above the central bank’s benchmark rate of 1.25 percent. However, the rise in household debt steered the government to adopt measures to cool down the property market.

"Considering all, we think the BoK will adopt a balanced view and keep rates unchanged at this week’s meeting," DBS commented in its latest research note.

Meanwhile, if political uncertainties persist and the implementation of fiscal policy and economic reforms continue to be delayed, it would depress not only the short-term but also the medium-term growth outlook, the report added.