Korea

Research evidence excerpt

Korea

nts to a sharp rise in private-sector net why the FX read-through is not straightforward. Foreigners

saving. Although the public sector is also benefiting from a sold domestic equities but continued to buy Korean bonds,

positive fiscal shock, the increase in private saving is likely to supported partly by WGBI-related demand for KTBs. At the

be even larger. As a result, Korea’s net international invest- same time, local residents continued to increase purchases of

ment position is set to rise substantially (Figure 1). foreign equities, indicating ongoing outward recycling of

Korea’s large CA surplus (Figure 3).

Figure 1: Current account and net IIP

% of GDP, both axes JPM forecast Figure 3: Financial account

20 60

50 US$ bn, annual; (+)ve = outflow

15 JPM fcst

40 150 Net FDI

10 Current account balance 30 Locals' portfolio

20 100 Foreigners' portfolio 5

0 0

-10

-5

Net international investment position -20

-10 -30 0

01 03 05 07 09 11 13 15 17 19 21 23 25 27 15 16 17 18 19 20 21 22 23 24 25 26

Source: BoK, and J.P. Morgan -50

Source: BoK, and J.P. Morgan

Record-high CA surplus in May

Korea’s May current account (CA) data reinforced the BoK preview

strength of the tech-led external surplus cycle. The CA sur- At the July MPC meeting, we expect the Bank of Korea to

plus reached a record US$38.6bn, with the seasonally adjust- raise the policy rate by 25bp, from 2.5% to 2.75%, with no

ed balance also near that level at US$38.1bn. The cumulative dissenting votes. Since the May meeting, Middle East geopo-

surplus so far this year has already exceeded the full-year litical risks have not fully dissipated, but oil-prices suggest

2025 outcome, highlighting the scale of the external adjust- that the near-term inflation stress has likely passed its peak.