Korea’s central bank playing a waiting game

The Bank of Korea (BoK) kept its policy rate at 3.25% today, as expected. The central bank is weighing downside risks to growth against the threat of higher oil prices pushing up inflation. Our view is that Korea’s growth will be sluggish this year and that oil prices are likely to fall back. The upshot is that, in contrast to the view held by most participants in the swap market, we continue to expect Korea’s policy rate to end this year lower than where it is now.