BOK seen staying on hold amid soaring won, weak inflation

South Korea’s central bank is widely expected to keep its benchmark interest rate unchanged on Thursday after raising it in November for the first time in more than six years, a Reuters poll found on Tuesday.

All 17 analysts surveyed by Reuters between January 8 and Monday predicted that the Bank of Korea (BOK) would keep its benchmark interest rate unchanged at 1.50 percent as it monitors the effects of its November move, which was seen as a potential turning point for tighter monetary policy in the region.

The BOK is not expected to start 2018 with another interest rate hike after raising the rate from a recordlow 1.25 percent on November 30, ending a five-year easing cycle as a sustained export boom lifts growth.

Despite the BOK rate hike, the overall economic position appears mixed. December inflation was at 1.5 percent, below the BOK’s target of 2 percent, while November factory output barely rebounded after contracting a month earlier.

The uncertain economic outlook, together with the won at a three-year high against the dollar, supports broad consensus that the South Korean central bank’s monetary tightening will be gradual this year.

“The easing of growth momentum in fourth-quarter 2017 and the retreat in CPI inflation to below 2 percent should reduce the need for the BOK to hike rates immediately again after the November move,” said Ma Tieying, an economist at DBS Group Holdings Ltd.

The upcoming meeting on Wednesday will be Governor Lee Juyeol’s second to last before his term ends on March 31.