May 4, 2023: Bank of Korea Governor Rhee Chang-yong stated it’s too early to discuss rate slashes.

The South Korean central bank was among the first to pause its tightening cycle, which spurs market speculation that it could soon begin slashing rates. But Rhee spoke at the Asian Development Bank’s annual meeting in Incheon that those expectations are “premature.”

“We made it clear, which provides that our core inflation is still well above our aim, and our inflation is going below 4%, so it’s decreasing,” Rhee said. “Still, given that it’s above the target, we have to wait and see, and then it would be slightly premature to talk about a pivot now.”

Rhee’s come a day after the economy reported inflation reached a 14-month low of 3.7% while hovering above the central bank’s target of 2%.

“We paused our interest rate in the previous two meetings as we have increased our interest prices by 300 basis points in 1½ years, very fast in pace. And we think it’s the right time to assess the accumulated impact from this rapid increase,” Rhee said.

Wall Street banks like Citi predict South Korea could start a rate-cutting cycle as early as the third quarter as headline consumer price index readings come down even further.

“In our view, headline CPI is likely to fall to early-mid 3%YoY levels in May′23E and 2%YoY levels in June′23E, potentially opening up scope for a rate-cutting cycle from 3Q23E,” Citi economists Jiuk Choi and Jin-wook Kim said in a Tuesday note.