Value context and insight. lkm@koreatimes.co.kr
BOK to pause rate cuts due to won's weakness, rising household debt
Bank of Korea (BOK) Gov. Rhee Chang-yong speaks during a seminar at the Korea Federation of Banks, April 3. Yonhap
By Lee Kyung-min
The Bank of Korea (BOK) is widely expected to leave the key rate unchanged at the upcoming monetary policy board meeting on April 17, according to market watchers on Monday.
Underpinning the view is the sustained weakness of the Korean currency against the U.S. dollar and a rapid uptick in household debt due to a short-term 39-day easing in the property regulations on Seoul's affluent areas before retightening.
However, calls for swift easing are also rising, as this year’s growth is feared to register lower than 1 percent, hamstrung by broader- and stronger-than-expected tariff shocks from the U.S., they said.
The country’s first-quarter growth is highly likely to be limited to the low-zero-percent range, according to the finance ministry and the central bank.
The only upside factor to the otherwise grim growth outlook is the potential implementation of an extra budget of at least 10 trillion ($6.8 billion), as advocated for by Deputy Prime Minister and Finance Minister Choi Sang-mok.
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“The central bank is likely to leave the key rate unchanged,” KB Securities researcher Lim Jae-kyun said.
The Korean economy is facing a weaker growth outlook due to U.S. President Donald Trump’s tariffs.
However, a weak Korean won and further currency volatility as well as property debt considerations will be hard to dismiss, Lim said.
“BOK Gov. Rhee Chang-yong already said any figures lower than the previous growth forecast of 1.5 percent should be countered with extra fiscal measures, leaving little room for expectations of an additional swift rate cut.”
A Samsung Securities report said a sharp buildup in the household debt will be a major financial stability consideration for the central bank’s rate dynamics.
“March figures could have ticked down but the February figures will be something to watch out for,” Samsung analyst Kim Ji-man said.
However, Kim Jin-wook, Citi Research's director and chief economist for Korea, said the BOK is likely to deliver a 25-basis-point cut each in April, July and October.
This is an advanced timeline compared to the previous three cuts it had expected for May, August and November meetings.
Kim said the central bank is likely to prioritize economic growth stabilization and concerns on financial stability. Also strengthening his view is manageable inflation and the political timeline.
“Still, higher volatility of the Korean won relative to the dollar could be the biggest hurdle for the rate cut from the April 17 meeting," he said.
The central bank lowered the key rate to 2.75 percent from 3 percent in February.