South Korea: Extra rate hikes remain on the cards – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest BoK monetary policy meeting.

Key Takeaways

“In line with market consensus, the Bank of Korea (BOK) raised its benchmark base rate by 25 bps to 1.25% ... This is the third rate increase in four meetings since Aug 2021 and has restored the interest rate to its level before the pandemic. Governor Lee Ju-yeol said the current policy rate is still below the neutral level and signaled that the BOK may raise the benchmark rate beyond 1.50%.”

“The BOK upped its inflation outlook for 2022 and now sees it “above the mid-2% level” compared to its Nov’s forecast of 2.0%. With pressure from commodity, housing and food prices, we have therefore raised our inflation forecast for 2022 to 2.6% from 2.0%.”

“The next meeting will be on 24 Feb which we expect the BOK to stay put. Thereafter, we expect another 50 bps interest rate hike this year given the hawkish posturing, likely with 25 bps each in 2Q and 3Q. Governor Lee’s second term will end on 31 Mar but his successor may be confirmed only after the new government comes into power in May following the presidential election on 9 Mar. This increases the uncertainty of the next rate hike timing.”