South Korea's central bank said it is weighing the timing of an interest rate cut but added more evidence is needed to strengthen confidence that inflation is returning to its 2% target, after it left a key policy rate unchanged on Thursday.
The Bank of Korea "will examine the timing of a rate cut," it said in a policy statement after leaving the benchmark interest rate (KROCRT=ECI) steady at 3.50% for the 12th straight meeting, as widely expected by all 40 economists surveyed by Reuters.
"Given the underlying uncertainties regarding the future path of inflation, however, it is necessary to further assess whether inflation will continue its slowing trend."
Expectations the BOK could cut interest rates in the coming months gained momentum after headline consumer price readings for June released last week showed inflation slowed to an 11-month low of 2.4%, close to its target of 2%.
In a crucial change, the BOK dropped the phrase from its May statement that "upside risks to inflation forecasts have increased."
South Korea's policy-sensitive three-year treasury bond futures fell 0.10 point to 105.31 as of 0144 GMT.
Asia's fourth-largest economy is confronting sticky inflation and policymakers are waiting for sufficient evidence that prices are cooling to begin lowering borrowing costs from restrictive levels.
The focus is on Governor Rhee Chang-yong's press conference at 0210 GMT, where the names of any dissenters could be announced. Dissenting votes typically lead to policy changes in subsequent months.
Governor Rhee said on Tuesday the central bank will now consider trade-offs between inflation and financial stability, given that price rises are easing amid a weaker won and rising household debt.
Economists say a wobbly won, down about 7% this year against the dollar, can potentially push back the timetable for interest rate relief, even as political pressure for early rate cuts grows.
"Sluggish economic growth and lower inflation support a near-term rate cut, although policymakers are likely to have concerns about FX and housing market," Oh Suk-tae, an economist at Societe Generale said.
"The rise in USD/KRW towards 1,400 and the rebound in Seoul apartment prices should support a wait-and-see stance in monetary policy."
