South Korea: BoK tightening cycle over? – UOB

Economist at UOB Group Ho Woei Chen assesses the latest monetary policy meeting by the Bank of Korea (BoK).

Key Takeaways

“As expected, Bank of Korea (BOK) raised its benchmark 7-day repo rate by 25bps to 3.50% (on January 13), the highest level since Dec 2008.”

“However, the rate decision was not unanimous with 2 policy board members voting for interest rate to be unchanged in Jan. Board members also expressed different opinions on the interest rate outlook with 3 out of 6 (excluding Governor Rhee) indicating possibility for a ‘terminal rate’ of 3.75%. This is a departure from the previous meeting in Nov when the same number indicated that they see the ‘terminal rate’ at 3.50%.”

“Barring a change to global inflation trajectory where price gains are expected to slow this year, we maintain our view that the latest rate hike has marked the end of BOK’s tightening cycle.”

“Indicating how quickly the economic outlook has deteriorated, the BOK suggested that it may further downgrade its GDP forecast at the Feb review from current 1.7% for 2023. The outlook for inflation is largely intact based on BOK’s assessment.”