Survey: Despite slowing inflation, the Central Bank is expected to keep policy Intrerest Rate unchanged until the third quarter

(1) According to a survey, all economists surveyed believe that the Central Bank is expected to keep the key policy Intrerest rate unchanged for the ninth consecutive time at its February 22 meeting. Respondents stuck to a long-held view that the first rate cut would occur in the third quarter. (2) Although inflation fell to a six-month low in January, South Korea's Central Bank Long Policy Committee believes that tight monetary policy needs to be maintained for some time to bring inflation down to the bank's target of 2.0%. (3) Although Central Bank Governor Rhee Chang-yong said that a premature rate cut could re-push inflation expectations, a cumulative rate hike of 300 basis points between August 2021 and January 2023 could pose a serious threat to highly indebted households. (4) However, all 38 economists surveyed in the Feb. 13-19 survey said the Central Bank would keep the benchmark Intrerest Rate unchanged at 3.50% at its Feb. 22 meeting. (5) Jeong Woo Park, economist at Nomura Securities, said, "With inflation still above the Central Bank's 2% target and the economic recovery momentum driven by strong export growth, the Central Bank will not cut interest rates at this meeting." (6) "However, for the rest of the year, interest rate cuts are expected to start in July, as recession fears will intensify again," he said. ” (7) The median estimate suggests that Intrerest Rate will remain unchanged until the end of June, as in many other Long Central Bank in the region, followed by a 25bp rate cut in both the third and fourth quarters, in line with the January survey estimates. (8) Among the respondents who estimated the September Intrerest Rate, the majority of Long (19 out of 28) expected the policy Intrerest Rate to be 3.25%, eight said 3.00%, and one expected 2.75%. (9) "We expect two rate cuts in the second half of the year. It depends on the Fed's rate-cutting cycle. If the Fed moves faster than we predict (four rate cuts are expected in 2024), South Korea Central Bank likely to respond with further rate cuts," said Chong Hoon Park, head of research at Standard Chartered Bank's Korea branch, "given that the current level of Intrerest Rate is high for both consumption and investment, the growth outlook for South Korea this year is not very promising"