South Korea: BoK increased the policy rate in August – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest interest rate decision by the Bank of Korea (BoK).

Key Takeaways

“As expected, Bank of Korea (BoK) raised its benchmark base rate by 25bps to 2.50% at its meeting … as it dialed down from the 50bps hike in Jul. In total, BoK has hiked interest rate for seven meetings since Aug 2021, by a cumulative 200 bps. The decision was again unanimous in Aug.”

“BoK upped its inflation forecast for 2022 and 2023 and revised down the GDP growth forecasts for the two years.”

“BoK’s concerns that inflation will stay high for a longer period of time even after it peaks will keep its focus on combating price pressures in order to bring headline inflation rate to a comfortable level of around 3% by end-2023.”

“We keep our forecast that the BoK will continue to raise the base rate by 25bps per meeting in Oct and Nov to bring the benchmark base rate to 3.00% by year-end. Thereafter, we expect the BoK to stay on hold through 2023 but there remains prospect of further tightening if the inflation trajectory continues along a path that exceeds 3% by end-2023.”