MNI BOK WATCH: Governor Flags Cut, But Timing Unclear

Bank of Korea Governor Rhee Chang-yong on Thursday signalled an upcoming rate cut on the back of downside risks to economic growth and elevated levels of global uncertainty but offered no guidance as to its likely timing or size.

The governor also warned of the impact of a weaker currency on inflation and the impact of low rates on household debt, after the BOK earlier in the day kept its policy interest rate unchanged at 2.75%.

“The Board will maintain its rate cut stance to mitigate downside risks to economic growth and adjust the timing and pace of any further Base Rate cuts while closely monitoring changes,” the governor said.

The future path of inflation is likely to be affected by economic conditions at home and abroad, by movements in exchange rates and global oil prices, and by the government's price stabilisation measures, he said.

DOWNSIDE RISKS

“Inflation remains stable, but downside risks to economic growth have intensified and uncertainties surrounding the economic outlook have significantly increased, owing to the deterioration in global trade conditions.”

The Board will continue to conduct monetary policy in order to stabilise consumer price inflation at the target level over the medium-term horizon as it monitors economic growth while paying attention to financial stability, he said.

“As inflation is expected to remain stable at around 2%, affected by declining oil prices and subdued demand pressure, despite upward pressure from an elevated exchange rate, both headline inflation and core inflation for this year are also expected to be generally consistent with the previous forecasts of 1.9% and 1.8%, respectively.”

The next meeting is scheduled for May 29.

The dollar traded at around KRW1419 just before 4 pm in Seoul on Thursday after rising to KRW1484.1 on April 9, the weakest for the won since 2009.