South Korea: BoK raised rates by 25 bps – UOB

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

Key Quotes

“As widely expected, the Bank of Korea (BOK) raised its benchmark base rate by 25 bps to 1.00% on Thursday (25 Nov). This is the second rate increase following an earlier move in August, driven by concerns over financial imbalances and higher inflation. However, the rate decision was not unanimous with one member (out of seven) voting to hold interest rate.”

“Having hiked rates twice, Governor Lee Ju-yeol cited uncertainty over the next move but will not rule out another hike in 1Q22. The timing continues to be dependent on domestic economic conditions while Fed’s normalisation trajectory would also be a factor. But by not committing to a timeline, the rate hike in November is seen as a dovish one.”

“The benchmark rate is still below the neutral level. Barring a downturn in its economy, we continue to project the next BOK rate hike in 1Q22 that would have unwound the total 75 bps rate cut due to the COVID-19 pandemic. Further out, elevated inflation from demand recovery, higher raw material costs and wage growth may pressure the BOK to bring the base rate above 1.25%, the level before the pandemic.”