(Bloomberg) -- The Bank of Korea is poised to hold its benchmark interest rate steady on Thursday in its last decision of the year, as market participants increasingly turn their attention to the timing of an expected easing cycle.

All 22 economists surveyed by Bloomberg see the BOK keeping the rate at 3.5%, meaning the central bank will have stood pat for a full year by its next meeting in January.

The BOK is expected to say it will keep its policy at what it categorizes as a restrictive level for some time as it has yet to discern clear evidence that price pressure has tapered off. Inflation accelerated unexpectedly for a third month in October, with consumer prices rising 3.8% from a year earlier. Household debt set a fresh record over the summer.

Recent history shows the BOK typically switches direction during its second year of keeping rates on hold, a tendency that supports the view of some economists wagering on a pivot next year. That view is largely dependent on inflation slowing as expected to the BOK’s targeted 2% level. 

The central bank is scheduled to release fresh 2024 forecasts for economic growth and inflation after Thursday’s rate decision. Those figures will help shape expectations around when a loosening cycle might begin.

“An eventual moderation in inflation will pave the way for the BOK to begin its easing cycle,” economists at BMI, a unit of Fitch Group, said in a report. They expect South Korea’s central bank to start rate cuts in the second half of 2024.

One factor that may affect the outlook is the trajectory of US monetary policy. Economists surveyed by Bloomberg expect the Fed to start loosening monetary policy in the second quarter of next year. Still they see the bank taking a gradual approach, keeping rates relatively high through the end of 2025.

For the BOK, recovering exports mean the trade-reliant economy will probably fare better next year than this year, giving authorities more confidence they can keep pressure on prices with restrictive policy staying in place. Semiconductor demand, which major companies including Samsung Electronics Co. rely on, is showing signs of coming back, while automobile and machine exports are also holding up.

“The ongoing memory upcycle could help buttress Korea’s exports against still-weak global demand, keeping Korea’s overall economic growth at a respectable pace,” Jin Choi, an economist at HSBC Bank said. He expects a quarter-percentage-point rate cut in the third quarter of next year.

The BOK has said it expects the economy to expand 2.2% in 2024, faster than the 1.4% estimated pace for this year. But Governor Rhee Chang-yong has also said recently that the Israel-Hamas conflict has thrown the growth outlook into question, and the bank might have to overhaul its projection.

What Bloomberg Economics Says...

“We now see the BOK waiting to start its cuts until August 2024, four months later than we previously forecast...the timing is based on our forecast for inflation to take longer to drop below 2.5%.”

— Hyosung Kwon, economist

For the full report, click here

Uncertainty over the policy outlook is also sprouting within the policy board. For months there has been unanimous agreement on maintaining a hawkish tilt, as officials pledged to stand ready to tighten further if needed. While last month’s decision to hold — and remain ready to hike further if necessary — was unanimous, one member suggested the board should also be open to the possibility of lowering rates if required in the near future.

Disparate voices may pave the way for more flexibility on policy as the economy sends out conflicting signals, including four months of declines in consumer confidence even as exports emerge from a year-long slump.

The currency is also offering more room for maneuver. The won has rebounded from a year-low reached in early October on growing expectations that the Fed is likely to refrain from tightening policy further.

“The macro backdrop should provide more flexibility to the conduct of monetary policy, allowing the central bank to focus more on domestic inflation and local demand, less constrained by rate differentials with the US and associated potential exchange rate pressures,” Goldman Sachs economists led by Goohoon Kwon said. They expect a less hawkish bias on Thursday.

--With assistance from Tomoko Sato and Hooyeon Kim.

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