Economists are now divided over whether South Korea's central bank will move to ease monetary policy this week after President Park Geun-hye on Monday surprised markets during her annual address to the nation by hinting of further rate cuts.
During the televised speech, Park pledged to "ensure that macroeconomic policy organizations collaborate to come up with timely responses," including interest rate cuts.
The comments sent South Korean bonds rallying on Monday, with the 1-year Treasury bond yield hitting a record closing low of 1.981 percent, as the consensus going into this week was for no change in monetary policy.
Officials later clarified that Park wasn't necessarily alluding to another rate cut, which would be the third since August of last year, but market watchers says her comments would inevitably put pressure on the Bank of Korea (BOK) to ease.
"President Park devoted much of her speech to reviving the economy through the three-year economic innovation plan announced last February... however, the obvious inference was that she was pressuring the Monetary Policy Committee (MPC) to increase accommodation at Thursday's meeting," said Tim Condon, head of research, Asia, at ING, in a note on Tuesday.
"The unusual remark leads us to think the odds of the cut occurring at the January 15 Monetary Policy Committee meeting have increased," Condon added. ING is forecasting a 25 basis-point rate cut to 1.75 percent during the meeting on Thursday, from 2 percent currently.
While the BOK acts as an independent entity, it is widely believed the government influences its decisions. Many analysts have attributed the 25-basis-point rate cuts in August and then in October to pressure from Finance Minister and Deputy Prime Minister Choi Kyung-hwan.