South Korea: A larger rate hike in July? – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the release of the inflation figures in South Korea.

Key Takeaways

“South Korea’s headline inflation soared to its highest since Nov 1998, at 6.0% y/y in Jun (Bloomberg est: 5.9%, May: 5.4%) and core inflation rose to 4.4% y/y (Bloomberg est: 4.2%, May: 4.1%).”

“Given the steeper trajectory in price increases, we now expect the headline CPI to stay close to 6.0% in 3Q22 before edging below 5.0% in the last two months of the year. This will bring the full-year inflation to an average of around 5.0% (vs. our previous forecast of 4.3%). We are maintaining our forecast for South Korea’s inflation to moderate to 2.5% in 2023.”

“Considering also a more hawkish Fed, we now expect the Bank of Korea (BOK) to hike the base rate by 50bps to 2.25% at the upcoming monetary policy meeting on 14 Jul, larger than our earlier forecast of a 25bps increase. This would have been the first time the BOK hike by a 50bps quantum.”

“Thereafter, the BOK is likely to revert to 25bps hike for the remaining meetings this year in Aug, Oct and Nov to bring the benchmark base rate to 3.00% by year-end (vs. our earlier forecast of 2.50%).”