Change of board members in April 2016 may have been a factor behind the move
March 7, 2016: Bank of Korea (BoK), the central bank of South Korea, is likely to keep its policy rate on hold when it meets on March 10 despite the economy being weak with January posting slower than expected industrial production. The bank has kept its policy rate unchanged at current record low 1.5% for the ninth consecutive month.
“Most economic data have deteriorated lately, and we see a rationale for easing, but the BoK is likely not yet convinced. We expect a dovish statement, but the BoK will likely point to concerns over market volatility; we forecast a rate cut in 2Q16,” says Joseph Incalcaterra and Frederic Neumann, economists at HSBC in their report.
Exports have kept falling for the past 14 months while the country also witnessed a near exodus of foreign capital late last year. The month of February saw high inflation driven mainly by a stronger than expected rise in food prices during the Lunar New Year period. “The BoK is unlikely to be swayed by short term trends, and we expect monetary policy to be more focused on growth data rather than inflation,” an HSBC report stated.
“We see a strong policy rationale for a rate cut, and the market is already starting to price one in. However, we think the BoK will wait until 2Q,” said economists at HSBC.
On Sunday, BOK announced that four of its monetary policy board members will be replaced in April 2016. The bank has written to three institutions, which can recommend members for the board, starting an official process to replace four of the board’s seven members. This may also lead to the bank’s dovish tone.