Will the Bank of Korea surprise markets again?

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The Bank of Korea (BOK) may cut its growth and inflation forecasts at Thursday's policy meeting, but it's likely to hold the line against mounting pressure for more interest rate cuts, analysts said.

"Undoubtedly, data in the first three months [of the year] do not bode well for growth," ANZ analysts said in a note last week. "The central bank will very likely downgrade its [annual growth] estimates."

South Korea's economy expanded 0.3 percent on month in 2014's fourth quarter, revised figures released in March showed, down from an initial reading of 0.4 percent and marking the slowest pace of growth since the first quarter of 2009, during the Global Financial Crisis.

Meanwhile, exports in March fell 4.2 percent on-year, worse than the 1.8 percent decline forecast in a Reuters poll, the largest decline in two years, while consumer inflation rose just 0.4 percent on-year, its slowest pace since July, 1999, the tail-end of the Asian Financial Crisis – amid low energy prices and weak consumer demand.

ANZ expects the BOK to revise its 2015 gross domestic product growth forecast to 3.1 percent from 3.4 percent currently. It also expects the central bank to slash its inflation forecast to 1.0 percent from 1.9 percent.

A rate cut is unlikely to accompany the revisions, however: "The downward revision of growth and inflation outlook has been priced in," ANZ said.

The BOK surprised markets in March, cutting interest rates by 25 basis points to 1.75 percent amid expectations it would stay on hold. The rate cut was a pre-emptive measure amid a subpar growth recovery, the central bank said.

More rate cuts?

Expectations the central bank could pick up its rate-cutting knife again got a fillip at the end of last month when BOK Gov. Lee Ju-yeol reiterated his concerns about weakness in the economy.

"Sluggish domestic demand centered around consumption is the main factor that we see harming the pace of economic recovery," Lee said, according to Reuters. "It will be difficult for the economy to escape current difficulties in a short period of time."

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But analysts aren't convinced the central bank will act this time, even though they were surprised last month.

Lee's comments just reinforced expectations that the policy stance is now in a "data-dependent mode," with more rate cuts on the cards, just not yet, ANZ said. "The risk is biased towards another interest rate cut as the sluggish domestic demand seems to drag economic recovery."

HSBC agreed, adding it expects the next rate cut of 25 basis points in the third quarter of this year, citing deterioration in the HSBC purchasing managers' index for Korea for the first time in three months in March.

Others expect the BOK has put its knives away entirely. Citigroup doesn't expect recent data – inflation in particular – to spur the BOK into action.

"Most of the monetary policy committee members believe inflation will pick up later in this year and that deflation concerns are excessive for now," Citigroup said in a note last week.