According to the latest BoK event, the central bank could start normalizing its monetary policy via interest rate hikes as soon as in October, noted UOB Group’s Economist Ho Woei Chen, CFA.
“In line with consensus and our expectation, the Bank of Korea (BoK) kept its benchmark base rate unchanged at a record-low of 0.50% today. One board member voted for a 25 bps rate hike as opposed to the previous meeting in May where the decision to keep the rate unchanged was unanimous.”
“Governor Lee Ju-yeol was also steadfast in his guidance for rate normalisation to start this year despite the resurgence in domestic COVID-19 infections as he signaled a potential hike as early as August. This means that BoK’s guidance leading up to the 26 August meeting will be crucial as is the domestic COVID-19 situation. We believe this is still contingent on the containment of the domestic infection rate before it becomes a larger drag on the economy.”
“The more contagious Delta variant has placed greater uncertainty over the near-term economic outlook. While we see the potential for a rate hike in August given BoK’s resolve to mitigate financial imbalance risks, we continue to maintain our base case assumption for rate normalisation to start in 4Q21 (likely in Oct as there is no meeting scheduled in Sep) with a 25 bps increase. We expect further 50 bps rate increases in 2022 to bring the benchmark base rate to pre-COVID level of 1.25%.”
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