BoK Preview: Forecasts from seven major banks, maintaining its policy rate, vacant governor position a key factor

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Thursday, 14 April at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks.  

The BoK is likely to stand pat as its committee awaits the appointment of a new governor. Changyong Rhee, Asia-Pacific director for the International Monetary Fund, has been nominated to take the helm.

SocGen

“The BoK is likely to hold its policy rate at 1.25%. Above all, the meeting is set to take place without a governor, as the parliamentary hearing for nominee Chang-Yong Rhee is to be held on 19 April. Headline inflation finally exceeded 4% due to higher energy prices, while a tight labour market added to inflation fears. But concerns on growth have also increased due to the war in Ukraine, the Fed’s hawkish stance, and the ongoing Omicron wave. A significant slowdown in household debt growth may also result in a wait-and-see stance. Our base scenario is still for one 25bp hike per quarter, resulting in a year-end (and terminal) rate of 2.0%. We expect rate hikes to resume at the following meeting in May. Although we see a higher terminal rate to address the rising inflation risks as a possibility, we await more information on governor nominee Rhee’s stance before reviewing our BoK call.”

ANZ

“Recent economic data support the case for the BoK to resume monetary policy normalisation with another 25bp rate hike. Admittedly, it is possible that the BoK will opt to defer a policy rate hike until its May meeting after the new governor takes office and when there may be more clarity on the extent of risks to growth. Notably, uncertainties surrounding the extent of the fallout from the Ukraine-Russia crisis and Omicron outbreak in mainland China are clouding the growth outlook. Still, we think growing pressure to anchor rising inflation expectations will take precedence, and note that the BoK has clarified that the absence of the governor will not affect operations and that the rate decision will be based on consensus. In the event that the central bank keeps policy rate unchanged, we expect the policy messaging to signal persistent concerns about inflation and that the pause is only temporary.”

Standard Chartered

“We expect the BoK to hold the base rate. We expect at least one dissenting vote for the rate hike, considering the recent CPI inflation report. CPI inflation came in at over 4% for the first time in 10 years, higher than the market survey. The market expected a print below 4%. Still, we expect the MPC to remain on hold in April, as it may prefer to first monitor the impact of its previous three hikes. The last MPC decision was unanimous and did not send a signal for a hike in April. Furthermore, the upcoming meeting will be conducted without the BoK’s governor, whose appointment awaits National Assembly confirmation. We think the MPC will send a message for a hike in May at this meeting. We think the MPC can wait until May, given that the BoK is ahead of the Fed rate-hike cycle.”

ING

“Given governor-nominee Rhee Chang-Yong's parliamentary hearing scheduled for 19 April, the MPC will be held for the first time in the absence of a governor. Indeed, the absence of a governor makes it even more difficult to predict BoK’s decision-making in a situation where inflationary pressures rise and concerns about the future growth outlook grow. It's a close call, but we predict a rate hike will occur in April, rather than May. Nevertheless, the question remains as to whether BoK is enterprising enough to make such an important decision in the absence of the governor. It is only because holding MPC without a governor itself is unprecedented. However, we think BoK will make a data-dependent decision rather than waiting for a new governor to come on board. If not, a couple of dissenting votes next week, then a rate hike will follow in May.”

TDS

“The new governor won't be confirmed at this meeting, but elevated and persistent inflation and high household debt, mean no reason to delay another hike.”

UOB

“As BoK Governor-nominee Rhee Chang-Yong may not be confirmed by the upcoming rate meeting on 14 Apr, there is likelihood that the BoK will resume its rate hike in May instead. We maintain our call for another 50 bps rate hike this year, 25 bps hike each in 2Q and 3Q to bring the base rate to 1.75% by 3Q. The higher inflation risk may warrant a further 25 bps increase in 4Q (not in our base case yet).”

Credit Suisse

“We expect a 25 bps hike from the upcoming BoK meeting. Although Governor Lee Ju-yeol stepped down from the BoK board on 31 March, we think his hawkish views on household debt and upside inflation risks still resonate with the remaining MPC (six voters instead of the usual seven) will be meeting on 14 April. Although the BoK began tightening well before the Fed, the more gradual pace of BoK rate hikes (25 bps per quarter) vs the Fed (50 bps moves expected in coming meetings) still points towards higher USD/KRW.”