More than nine out of 10 bond experts predicted that the Bank of Korea's monetary policy committee will keep the benchmark rate unchanged in April this year. Analysts said price and exchange-rate pressures remain to the upside, but their intensity is likely to be weaker than last month.
According to the "May bond market index" that the Korea Financial Investment Association released on the 8th, a survey the association conducted Mar. 30–Apr. 2 of 100 bond-holding and management professionals at 43 institutions found that 93 respondents expected a rate hold.
That is slightly lower than in the previous survey, when 99% projected a hold. The shift appears to reflect heightened concern about inflation due to high oil prices and a strong dollar stemming from the prolonged Middle East geopolitical risk.
The market is keeping the door open to a rate cut. The interest-rate outlook BSMI was 102, up from 99 a month earlier. As it stands above the baseline of 100, expectations for lower rates still dominate.
Among respondents, the share expecting rates to fall was 25%, up 1 percentage point from 24% a month earlier. The proportion of respondents expecting higher rates was 23%, down 2 percentage points from 25% a month earlier. Despite uncertainty in the global bond market, expectations of foreign capital inflows following inclusion in the World Government Bond Index (WGBI) in April appear to have improved sentiment.
There was a forecast that price pressures will build. The inflation BSMI was 81, an improvement from 50 a month earlier, but still below the 100 baseline. While rising international oil prices point to greater inflation risk, analysts said the government's implementation of a cap on petroleum product prices increased the number of respondents expecting lower inflation.
Respondents expecting prices to rise fell to 31%, down 19 percentage points from 50% a month earlier, while those expecting prices to fall rose to 12%, up 12 percentage points from 0% a month earlier.
A weaker won was the dominant outlook. The exchange-rate BMSI was 95, an improvement from 80 a month earlier, but remained below 100. However, with the protracted Middle East war pushing the rate above 1,500 won, analysts said the scope for further gains is limited.
In fact, 24% said the exchange rate will rise, down 11 percentage points from 35% a month earlier. Those expecting a decline were 19%, up 4 percentage points from 15% a month earlier.