South Korea: BoK expected to keep the steady hand

Economist at UOB Group Ho Woei Chen, CFA, reviews the outlook for the country and the Bank of Korea (BoK.

Key Quotes

“The headline inflation went above the Bank of Korea’s (BOK) 2% inflation target for the first time since November 2018, jumping to 2.3% y/y in April from 1.5% in March (Bloomberg est 2.1%). Core inflation (excluding agricultural products & oils) also rose to 1.4% y/y from 1.0% in March (Bloomberg est 1.2%). On a month-on-month comparison, the headline and core CPI rose 0.2% and 0.3% respectively.”

“South Korea’s trade data remained buoyant in April with export and import growth strengthening to 41.1% y/y and 33.9% y/y respectively.”

“South Korea’s consumer confidence index rose to 15-month high at 102.2 in April from 100.5 in March. This is the second straight month the index was above 100, indicating more optimistic outlook. This followed the moderation in the unemployment rate to 3.9% in March from 4.0% in February and as high as 5.4% in January.”

“We maintain our positive outlook for South Korea’s export and investment this year, barring economic disruption from another wave of coronavirus infection. Consumption recovery will likely be more gradual. We have raised our 2021 full-year growth forecast for South Korea to 3.7% from previous 3.3% following the stronger-than-expected advance 1Q21 GDP.”

“Despite the higher inflation and stronger economic outlook, the BOK is still expected to remain on hold for the rest of the year due to the uncertainties posed by COVID-19 as many economies are still battling resurgent infections. The central bank has repeatedly said it will maintain its accommodative monetary policy until the economic recovery is stable, which will also mean a stronger rebound in the labour market. The attention at May’s monetary policy meeting will be the BOK’s updated GDP growth and inflation forecasts.”

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