The central bank of South Korea maintained its benchmark rate steady and showed an upbeat tone, indicating policymakers will not be in a rush to further reduce borrowing costs. 

Annual inflation reached an all-time low in 2019, however analyst opinion was divided as to whether there would be further easing.

The Bank of South Korea’s policy board voted 5-2 to maintain the base rate steady at 1.25%, as forecast by all 33 analysts polled by Reuters, following two reductions in July and October last year.

Analysts described the statement as less dovish than the one in November, as it contained a new clause featuring capital investment and fears over increasing home prices.

Paik Yoon-min, fixed-income analyst at Kyobo Securities, who sees one rate cut this year, commented: “The statement suggests policymakers are seeing a rebound in growth sentiment. It’s more hawkish than the previous one but doesn’t deviate too much.”

The March contract on three-year treasury bond futures fell following the statement was published but pared back as Governor Lee held a press conference.

Governor Lee maintained a positive tone for Korea’s economy for this year because “the U.S. and China managed to make progress with the Phase 1 deal and as many institutions are seeing a recovery in semiconductor industry from mid- this year.”

Despite previous cuts to rates, the Bank of Korea forecasts the economy to have expanded just 2.0% in 2019, the slowest in 10 years.

Furthermore, exports shrank for the 13th consecutive month, however December recorded the smallest fall since April, sparking hopes that global trade may be improving as the economy was hit hard on weakening demand from China for its chips.

Samsung Electronics announced last week its preliminary quarterly earnings surpassed estimates in Q4 last year.

Out of the 33 analysts surveyed by Reuters, 14 stated they forecast another cut within the year, with six saying it could potentially happen in Q1. However, 15 analysts predict no change in 2020.

Although certain policymakers continue to advocate a rate cut, others on the monetary policy board are cautious of ultra-low rates leading to a housing bubble.

Since President Moon Jae-in took office in May 2017, the average apartment price in the South Korean capital was up nearly 50% in December last year.

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