BNP Paribas Forecasts South Korea's Base Rate Hold in April... Possible Cut Within the Year

Core CPI reaching the 2% range is key... Interest rate cuts possible within the year

The Bank of Korea is expected to maintain the base interest rate at 3.50% at the upcoming Monetary Policy Committee meeting this month. There is even speculation about the possibility of a rate cut within the year.

Yoon Ji-ho, an economist at BNP Paribas Bank, analyzed this in a report issued on the 5th.

According to Statistics Korea, the Consumer Price Index (CPI) in South Korea rose by 0.2% month-on-month and 4.2% year-on-year in March. This figure is slightly lower than the market consensus and BNP Paribas' forecast of a 4.3% year-on-year increase. The core inflation rate, which excludes agricultural products and petroleum, remained unchanged at 4.8%. The core inflation rate excluding food and energy also stayed the same as the previous month at 4.0%.

Economist Yoon stated, "The core CPI excluding food and energy is likely to become entrenched in the short term, and the headline CPI will ease faster than the core CPI," adding, "The core CPI is expected to remain in the high 3% range until May, then ease below 3% from June, and possibly fall to the high 2% range starting in the fourth quarter."

Therefore, it is analyzed that the Bank of Korea may begin cutting interest rates sooner than expected. Economist Yoon said, "Concerns about further rate hikes have somewhat eased, but it may still be difficult for the Bank of Korea to cut the base rate within this year," and added, "We still expect rate cuts to begin from the first quarter of next year, but if inflation eases faster than expected, rate cuts could start in the fourth quarter of this year." He further explained, "I strongly believe that once the core CPI falls to the 2% range, the Bank of Korea will inevitably have to cut the base interest rate."