USD/KRW: Central bank to maintain accommodative policy, Korean won to rise gradually  – Wells Fargo

On Wednesday, the Bank of Korea will have it monetary policy meeting. Analysts at Wells Fargo expect the central bank to keep the current rate (7-day repo) unchanged at 0.50% (similar to market consensus). They see the South Korean won (KRW) rising gradually over the long term. 

Key Quotes: 

“South Korea saw a spike in COVID cases in Q4-2020, but it does not appear to have dinged the economy's recovery too badly. Real GDP growth was +1.1% quarter-over-quarter in Q4. Private consumption declined amid the public health challenges, but solid growth in gross capital formation and exports helped propel the South Korean economy higher. South Korean economic output was “only” down 1.4% compared to Q4-2019, and this marks one of the stronger performances in the developed world.”

“In its most recent monetary policy decision, the Bank of Korea (BoK) noted a phenomenon with which many U.S. watchers will be familiar: low inflation but accelerating asset prices. Core CPI inflation was just 0.9% year-over-year in South Korea, and the central bank anticipates that it will remain around this pace for the foreseeable future. Asset prices, however, have climbed as “[domestic] stock prices have surged...and housing prices have accelerated in all parts of the country.” With consumer price inflation low, the BoK will likely maintain its accommodative monetary policy stance for some time.”

“Although higher interest rates may not be in the cards anytime soon, with South Korea a major exporter and tightly integrated into the global economy, we expect the global economic recovery to benefit the Korean won, albeit at a gradual pace, over the longer term.”