"February Monetary Policy Board Seen Keeping Rates Unchanged by Unanimous Vote...Limited Impact on Bond Market"

Base Rate Expected to Be Kept at 2.5% with Growth Outlook Revised Upward
"Neutral Event for the Bond Market" and "Perceived as More Accommodative Than in January"

Securities firms assess that this week’s Monetary Policy Board meeting of the Bank of Korea is likely to result in a unanimous decision to keep the base rate unchanged at 2.5% and an upward revision of the growth outlook, while the impact on the bond market will be limited.

Yonhap News Agency

On the 24th, Kim Jiman, researcher at Samsung Securities, stated this in a report titled "February Monetary Policy Board Preview," saying, "Given the recent strength in exports and the stabilization of consumer price inflation, another rate freeze is highly likely." The February Monetary Policy Board meeting will be held on the 26th.

Kim assessed, "There is a high possibility of a unanimous decision to freeze the rate, just like in January, and the forward guidance from the Board members is also likely to be the same as in January." He added, "The Bank of Korea will revise this year’s growth forecast upward to reflect the recent increase in exports, centered on semiconductors," and said, "This time, we expect an upward revision from the existing 1.8% to around 1.9-2.0%."

However, uncertainty over tariffs remains in place following last weekend’s ruling by the U.S. Supreme Court that certain tariffs were unlawful. Kim noted, "Uncertainty surrounding tariff policy is continuing, albeit in a different form, as the Donald Trump administration immediately reimposed a 10% global tariff based on Section 122 and then raised it again to 15% just one day later," and added, "In light of this, the Bank of Korea is more likely to make only a small adjustment to its economic policy this time and then make additional adjustments at the next meeting in May, rather than implementing a large one-off change." Samsung Securities currently projects this year’s economic growth rate at 2.3%.

This Monetary Policy Board meeting is expected to be a "neutral event" for the bond market. Domestic bond yields, which had continued to rise in early February, have recently been on a downward trend. Kim explained the market tone by saying, "Overseas government bond yields, including those in Japan and the United States, have fallen somewhat, and comments on interest rates by the head of the Bank of Korea’s Financial Markets Department, indicating that the recent rise in yields may have been somewhat excessive and that the Bank is prepared to respond if necessary, have served as a factor driving bond yields lower."

He said, "The message that the Bank is willing to respond if rates are excessively high and showing signs of one-sided moves raises expectations for a dovish (monetary-easing-oriented) Monetary Policy Board." At the same time, he stressed, "It is unclear whether the comments made that day reflect the views of the majority of Board members. An upward revision of the growth outlook can be read as a hawkish (monetary-tightening-oriented) signal, and given that the asset effect from the strong stock market also needs to be taken into account, expectations should not become excessive."

On the same day, Kim Jina, researcher at Eugene Investment & Securities, also projected a unanimous decision to keep the base rate unchanged and an upward revision of the growth outlook, saying, "The overall tone is expected to be more accommodative than in January. The factors that had reinforced the hawkish stance in January have not become stronger." She diagnosed, "Even if this Monetary Policy Board meeting results in the same decision as in January and similar remarks on the surface, the bond market’s perception will be relatively more accommodative," and added, "The key points to watch are changes in the economic outlook and remarks on the exchange rate. The Bank of Korea is likely to raise its growth forecast from 1.8% to around 1.9-2.0%."

She continued, "Since the head of the Bank of Korea’s Financial Markets Department recently pointed out that Treasury yields have risen excessively relative to the base rate, investor sentiment in the bond market has begun to improve," but added, "Yields are still at levels that price in more than one additional rate hike, so the carry appeal remains relatively high."