Bond Experts 98% Expect January Monetary Policy Committee to Keep Base Rate Unchanged

Korea Financial Investment Association February Bond Market Indicator Announcement
2% Expected 25bp Cut

Nine out of ten bond experts predicted that the Bank of Korea would keep the base interest rate unchanged at the January Monetary Policy Committee (MPC) meeting.

On the 9th, the Korea Financial Investment Association announced the 'February 2024 Bond Market Sentiment Index (BMSI)'. The base interest rate BMSI in the February bond market indicator was 102.0, showing a stable trend compared to the previous survey.

BMSI is an indicator that reflects bond market sentiment. A value above 100 means bond prices are rising (interest rates falling) and sentiment is positive. Conversely, a value below 100 indicates a contraction in bond market sentiment.

98% of survey respondents answered that the Bank of Korea would keep the base interest rate unchanged at the January MPC meeting. Meanwhile, 2% expected a 25bp cut. A representative from the Korea Financial Investment Association explained, "Following the release of the minutes of the December U.S. Federal Open Market Committee (FOMC), expectations for an early rate cut have weakened and uncertainty in monetary policy has increased," adding, "The prevailing view is that the current interest rate level will be maintained at the January MPC."

The interest rate outlook BMSI was 90.0, down 60 points from 150.0 the previous month. Bond market sentiment related to market interest rates deteriorated compared to the previous month. Expectations for a rate cut at the end of last year were pre-reflected in the market, causing a sharp decline in interest rates. However, as expectations for a rate cut have retreated, a reversal in interest rates has occurred, leading to an increase in respondents expecting a rate hike in February. 34% of respondents expected interest rates to rise, up 26 percentage points from the previous month. The proportion of respondents expecting a rate cut was 24%, down 34 percentage points from the previous month.

The inflation BMSI recorded 119.0, rising 5.0 points from the previous month. With the consumer price inflation rate at 3.2% in December last year showing a decline for three consecutive months, and supported by stable international oil prices, the proportion of respondents expecting inflation to fall increased compared to the previous month. Respondents expecting inflation to fall rose 8 percentage points to 24%. The proportion of respondents expecting inflation to remain stable fell 11 percentage points to 71% compared to the previous month.

The exchange rate BMSI was 104.0, down 33.0 points from 137.0 the previous month. The minutes of the U.S. FOMC were interpreted as hawkish, and as risk-averse sentiment expanded due to uncertainty in monetary policy, this acted as a factor strengthening the U.S. dollar. In fact, respondents expecting the exchange rate to rise increased by 8 percentage points to 13%. Those expecting the exchange rate to fall decreased by 25 percentage points to 17%.

The composite BMSI was 94.6, down 14.1 points from the previous month. It is analyzed that bond market sentiment deteriorated in February as expectations for a rate cut weakened due to strong U.S. employment data.

This BMSI survey was conducted from December 29, 2023, to January 4, 2024, targeting 100 individuals from 53 institutions involved in bond holding and management.

This content was produced with the assistance of AI translation services.