Base Rate Likely to Stay on Hold Until August

[Financial News] Members of the Bank of Korea (BOK) Monetary Policy Board signaled that the base rate is unlikely to move over the next six months. In the dot plot introduced for the first time at this meeting, all but 5 of the 21 dots were placed at the current level of 2.50%.
According to the six‐month conditional rate outlook (forward guidance) dot plot included in the statement on the monetary policy decision released by the BOK on the 26th, 16 out of 21 dots were positioned at 2.50%. This indicates that the board members see it as highly likely that the rate will be kept on hold at least through August. They judge that exports, led by semiconductors, and the recovery in domestic demand remain solid, while issues such as rising real estate prices and the won–dollar exchange rate are unlikely to be resolved within that period.
However, four dots were placed at 2.25%, and the remaining one at 2.75%. Governor Rhee Chang-yong explained, "The possibility of a cut reflects the need to support sectors outside information technology (IT), as the pace of recovery between IT and other areas differs significantly," adding, "There is also one dot for a hike, but that is meant to capture potential movements in the exchange rate and oil prices."
The dot plot represents how the seven Monetary Policy Board members, including the governor, each expressed what they see as appropriate base rate levels over the next six months using three dots. Choi Chang-ho, head of the BOK Monetary Policy Department, noted, "Each dot reflects an individual projection based on the economic outlook, indicating the level that each member judges to be most appropriate, from a medium‐term perspective, for stabilizing inflation at the target and maintaining financial stability."
This framework was introduced at the board meeting on this day and will be released alongside the economic outlook in February, May, August, and November going forward. Every board member, including the governor, has three voting dots. They may allocate two dots at one level and one at another, place all three at the same level, or distribute all three at different levels. The three‐month forward guidance introduced in October 2022 only disclosed the "possibility" of a hold, hike, or cut as indicated by board members other than the governor, and even that was conveyed orally by the governor.
The Federal Open Market Committee (FOMC) in the United States publishes a quarterly dot plot showing the future rate projections of 19 participants, including non‐voting members. Because a single dot per board member would not provide enough information, the BOK has concluded that three dots per member are more appropriate.
Regarding the possibility of extending the time horizon to one year, Choi said, "With a three‐month horizon, there is a limit to the additional information available beyond the current‐month decision, so there was consensus on the need to extend it." He continued, "However, moving all the way to one year could actually restrict the information value, because Korea is a small, open economy exposed to uncertainty and variables can emerge over shorter intervals than a year."
taeil0808@fnnews.com Kim Tae-il Reporter