South Korea: BoK raised the policy rate by 50 bps – UOB

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

Key Takeaways

“Bank of Korea (BOK) raised the benchmark base rate by 50 bps to 2.25% at its meeting today (13 Jul), in line with expectation. This marks the first time the BOK hiked by a 50bps quantum and the 6th rate increase since Aug 2021 with a cumulative 175 bps hike since then.”

“Governor Rhee Chang-yong said the decision was unanimous but the 50 bps hike was an ‘exception’, indicating that it will be ‘desirable’ to keep future rate increase in clips of 25 bps. However, he also warned that the stance could change if there are unexpected developments that sharply increase inflation risks. Notably, the government is also stepping up measures to contain inflation such as expanding a zero percent quota tariff for imported food items.”

“The BOK also highlighted its view of a higher inflation and lower growth forecast for this year, compared to its forecasts in May.”

“On the assumption that inflation will peak in 2H22, we maintain our forecast for the BOK to revert to 25 bps hike for the remaining meetings this year in Aug, Oct and Nov to bring the benchmark base rate to 3.00% by year-end. With an expected moderation in inflation rate next year, the BOK is likely to stay on hold thereafter, or even begin to trim interest rate should growth risks mount.”