South Korea: BOK Hikes to 2.75%, As Expected, and Stresses Data Dependency on the Next Hike

Research evidence excerpt

South Korea: BOK Hikes to 2.75%, As Expected, and Stresses Data Dependency on the Next Hike

Goldman Sachs South Korea

and the Board will determine the timing and pace of further increases in the Base

Rate while assessing the extent of inflationary pressure, the improvement trend in

the domestic economy, and financial stability”.

6. During the press conference, the Governor’s tone stressed data dependency in

deciding the timing and pace of further hikes. He emphasized strengthening growth

momentum driven by semiconductors and the potentially meaningful spillovers from

exceptional income growth should it be sustained. The Governor commented that

every meeting in the near term would be a “live” meeting in the sense that additional

rate hikes may be possible depending on data. In that regards, the Governor

highlighted key upcoming data as following: Q2 GDP and GDI growth, July CPI

inflation (including cost of living index), ongoing forex market movements (due to

high import inflation) and housing prices.

7. Beyond these comments, the Governor did not give much hints on the pace and

extent of future policy rate hikes. In response to a question on any updates to the

dot plot provided in May (in which the median dot signaled total 50bp hikes over

following 6 months), he commented that the discussions during today’s rate decision

meeting have been broadly consistent with the dot plot presented in May, even with

some incorporation of newly available data. Next update will be given in August.

8. On recent weakness in employment, with negative year-on-year growth in May and

limited recovery in June, the Governor explained that uncertainties surrounding the

Middle East energy supply seem to have played a role, along with structural