By Kwanwoo Jun
South Korea's central bank held its base rate steady in a move that was widely anticipated but came alongside growing expectations that it could be gearing up to pivot toward policy easing in the coming months.
The Bank of Korea on Thursday left its benchmark seven-day repurchase rate unchanged at a 15-year high of 3.50% for a 12th straight time--the longest such streak ever.
All 26 economists surveyed by The Wall Street Journal had expected the bank to stand pat in July, with some penciling in a rate cut as early as in August and most forecasting the start of policy easing in October or November.
BOK Gov. Rhee Chang-yong said Thursday's decision was unanimous, but the seven-member policy board was divided on future rate moves. Two of six board members, excluding him, were open to a possible rate cut in the next three months, while four members still preferred to keep the rate steady in the near term.
"Market expectations for a rate cut are somewhat excessive," Rhee said, adding that it remained difficult to predict when rate cuts would start.
Economists think the central bank may want to wait for second-quarter growth data and July inflation figures to better gauge how the South Korean economy is faring before it moves on rates.
BOK policymakers also have their eye on the U.S. Federal Reserve policy meeting due later this month.
Easing inflation in South Korea has put pressure on the BOK to lower interest rates, with the country's headline inflation having slowed to an 11-month low of 2.4% in June.
Sluggish domestic demand and signs of financial distress caused by higher interest rates also back the case for the bank to lower borrowing costs to help spur growth in the country.
Still, the BOK is widely expected to tread cautiously, wary about rushing rate cuts due to uncertainty around the U.S.'s monetary policy path and high levels of household debt in South Korea.
The BOK expects South Korea's economy to grow 2.5% this year, with inflation forecast to average 2.6%. It expects economic growth to slow to 2.1% next year, with inflation likely to ease to 2.1% as well.
ANZ economist Krystal Tan said that given that no dissenters called for a rate cut at Thursday's meeting, a policy pivot is more likely to happen in October than at the August meeting.
"The BOK is preparing the grounds for a shift in policy stance," Tan said. "However, there was little to suggest that the BOK is in a hurry to cut rates."
Write to Kwanwoo Jun at kwanwoo.jun@wsj.com
(END) Dow Jones Newswires
07-11-24 0258ET
