SEOUL (Reuters) -South Korea’s central bank unexpectedly left its policy interest rate unchanged on Thursday, weighing the impact of its back-to-back cuts last year while supporting the won which has weakened to a 15-year low versus the U.S. dollar in recent weeks.
It was an outcome correctly foreseen by only seven of 34 economists polled by Reuters, while the rest had expected the Bank of Korea to lower the rate by 25 basis points.
MARKET REACTION:
South Korea’s policy-sensitive three-year treasury bond futures traded up 0.17 points at 106.69 as of 0058 GMT, cutting earlier gains of as much as 0.29 points, while the won strengthened against the dollar.
COMMENTS:
MOON HONG-CHEOL, FIXED-INCOME ANALYST, DB FINANCIAL INVESTMENT
“It seems the Bank of Korea wants to wait and see if volatility heightens in the foreign exchange market after Trump’s inauguration. It is still expected to cut rates in the first quarter, so it will have to be in February now.”
PARK SANG-HYUN, ECONOMIST, IM SECURITIES
“The monetary policy board is apparently being mindful of the possibility that the U.S. Federal Reserve might pause rate cuts due to uncertainty of Trump’s policy, though February seems already late.”
GARETH LEATHER, SENIOR ASIA ECONOMIST, CAPITAL ECONOMICS
“There are good reasons to expect the central bank to resume its easing cycle soon amid signs the political crisis is weighing on the economy. But even if the crisis is resolved soon, GDP growth is expected to struggle as a combination of weak income growth, a downturn in the property sector and tight fiscal policy weigh on demand.”
KONG DONG-RAK, ECONOMIST, DAISHIN SECURITIES
“It seems the Bank of Korea was also pressured to hold rates today by news headlines of ‘three consecutive rate cuts’. Its policy stance of monetary easing remains intact, and market reaction still seems to indicate a rate cut next month.”
CHO YONG-GU, ECONOMIST, SHINYOUNG SECURITIES
“Political uncertainty has been a two-way factor for the Bank of Korea with downward pressure on economic growth as well as the won, and this time, it had to be considerate of the won, which has weakened more than its fundamental value.”
PAIK YOON-MIN, FIXED-INCOME ANALYST, KYOBO SECURITIES
“The Bank of Korea is taking a breather amid uncertainty over Trump and U.S. Fed policies, but that could be even higher afterwards. The BOK should have cut rates when it could.”
(Reporting by Jihoon Lee, Yena Park and Youn Ah Moon; Editing by Christopher Cushing)
