07:47 AM EDT, 08/22/2024 (MT Newswires) -- The Bank of Korea (BoK) held the policy rate unchanged at 3.50% with a unanimous decision at Thursday's policy meeting, which matched the market consensus, said Societe Generale.

However, the bank has found quite a few 'dovish' surprises compared with its expectations. Above all, the number of Board members who are open to the possibility of a rate cut within a three-month horizon increased from two to four, while SocGen had anticipated no changes on this point.

The BoK lowered the forecasts for both gross domestic product (GDP) and inflation for 2024 (from 2.5% to 2.4% for GDP growth and from 2.6% to 2.5% for headline CPI), while the bank had seen a downward revision only for inflation. The concluding paragraph of the policy statement mentioned "greater confidence that inflation will converge on the target level" and omitted the word "a sufficient period of time" in arguing that the BoK will maintain a restrictive monetary policy stance.

Governor Rhee Chang-yong admitted that the concern about the housing market and household debt led to the decision to hold the rate unchanged while the conditions on inflation alone would justify a rate cut.

As the BoK's intention to cut rates in the near future -- probably within the end of this year -- has become clearer with those dovish changes, the next question to raise is when the rate cut will actually be implemented, in October or in November, stated SocGen. Governor Rhee's comment that the BoK has changed the way of communication to give a hint for an impending rate decision from a formal dissent vote to an informal "forward guidance" during the press conference apparently supports many market participants' view that the rate cut will take place in October, given the increase in the number of Board members who are favorable for a rate cut within three months.

However, Rhee hinted at the end of the conference that 'within three months' including the meeting in November, which may lead to a hawkish interpretation that two Board members don't open the possibility of a rate cut even at the end of this year (November meeting is the last one this year).

In SocGen's opinion, Governor Rhee suggested that the rate cut in October is not a 'done deal.' In other words, he effectively argued that every policy meeting is 'live' in the sense that the decision is made after reviewing all the available data and policy actions.

The bank just reiterated its view that the rate cut is more likely to be implemented in November than in October, as SocGen thinks that the current pace of the housing market rally looks too strong to be controlled by the macroprudential measures the bank has watched so far including the tightening of the stress DSR (debt service ratio) announced early this week.

In other words, SocGen believes that October is too early to confirm the stabilization in the housing market and household debt situations.