South Korea: BoK hikes rates and revises up inflation – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest interest rate decision by the BoK.

Key Takeaways

“Bank of Korea (BOK) raised its benchmark base rate by 25 bps to 1.75% at its scheduled meeting today (26 May). All analysts polled by Bloomberg including UOB had expected the hike.”

“The key takeaway from the revisions to the growth and inflation forecasts as well as comments from BOK is that inflation is a much bigger concern than growth risks in the near-term. Governor Rhee was explicit on the need to tighten monetary policy further and to get real interest rates to a neutral level.”

“Given the persistent upside risks to inflation, we are raising our call for BOK’s tightening as we now expect the central bank to hike by 25 bps at each of the three subsequent meetings in Jul, Aug and Oct before stopping at its last meeting this year in Nov. This will bring the benchmark rate to 2.50% by end-2022 (vs. our previous forecast of 2.00%). We believe the BOK will stay on hold thereafter as inflation starts to moderate.”