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Why Neutral Rates are High

• Market interest rates still price a mean reversion, albeit with less imminence than earlier this year. Resilient economic data imply the prevailing neutral rate is higher.
• Slow GDP growth suggests opportunity is low, depressing the consensus view of neutral, but rising time preferences in the post-pandemic regime would also drive rates up.
• We find reasons for this structural shift and are mindful that another regime change is unlikely outside of a recession. This still provides a hawkish anchor to our forecasts.

By Philip Rush

Korea Policy Rate 3.5% (consensus 3.5%) in Feb-24

• The Bank of Korea's decision to maintain the Policy Rate at 3.5% reflects a careful balancing act between controlling inflation and fostering economic growth amidst significant domestic and global economic uncertainties.
• Future interest rate decisions will be significantly influenced by the trajectory of inflation, the state of the global economy, including major economies' monetary policies, commodity price movements, and geopolitical developments.
• The bank's policy formulation will continue to prioritize financial stability, closely monitoring domestic economic indicators, financial and foreign exchange market dynamics, and household debt trends to guide its approach to achieving medium-term inflation targets.