Korea Monetary Policy January 2022

At its assembly on 13 January, the Financial institution of Korea (BOK) raised the bottom charge by 25 foundation factors to three.50%. The choice matched market expectations, however it was not unanimous: Two of the financial coverage committee’s seven members voted for charges to stay unchanged.

Inflation and inflation expectations remained above goal in December, pushing the BOK to hike. That stated, each inflation and inflation expectations have moderated in current months, probably explaining the BOK’s choice to go along with an incremental 25 foundation level rise and why the choice to hike was not unanimous.

In the meantime, the BOK stated it will probably revise downward its 1.7% forecast for GDP progress this yr. Nevertheless, it saved its forecast for inflation this yr unchanged at 3.6%.

In its press launch, the BOK saved the door open to future charge hikes, relying on the evolution of inflation and GDP. 12 of the panelists polled by FocusEconomics don’t count on additional charge rises forward, whereas the opposite 5 count on not more than 25 foundation factors of extra hikes by the top of the yr. Our panel expects the BOK to scale back the coverage charge by 25 foundation factors in H2.

Key dangers to the financial coverage outlook are the Fed’s stance, the evolution of the gained, continued instability in home monetary markets and a sharper-than-expected financial slowdown.

The following BOK assembly is scheduled for 23 February.

Analysts at ANZ stated:

“For our half, we stay of the view that the BOK’s charge mountaineering cycle has come to a detailed amid a broadening progress slowdown, moderating inflation expectations and an bettering outlook for South Korea’s steadiness of funds.”

Analysts on the EIU stated:

“We consider that the BOK will finish its present financial coverage tightening cycle in February, because the home inflationary image continues to enhance. This may even scale back the draw back pressures on South Korea’s financial system, which is slowing amid weakening exterior demand. If headline inflation stays above 4.5% all through the primary quarter, the central financial institution might go for yet one more 25-basis-point charge enhance. Nevertheless, we connect a low threat to this occurring.”

The Consensus is for the bottom charge to finish 2023 at 3.19% and 2024 at 2.45%.