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Korea Monetary Policy August 2022

Korea: BOK holds fire for fifth consecutive time at August meeting

At its meeting on 24 August, the Bank of Korea (BOK) kept the base rate unchanged at 3.50% for the fifth consecutive meeting. The decision was unanimous and matched market expectations.

The BOK’s decision was driven by easing inflation, which fell for the sixth month running in July. Two factors have reduced price pressures. One is a high base of comparison created by surging energy prices in H2 last year. The second is declining private spending in the face of shrinking savings and higher interest rates amid one of the biggest household debt-to-GDP burdens in the world.

In its forward guidance, the BOK retained its hawkish bias, stating that it would “maintain a restrictive policy stance for a considerable time with an emphasis on ensuring price stability”. Most of our panelists expect the BOK to start cutting its policy rate in Q1 2024.

The next BOK meeting is scheduled for 19 October.

Analysts at Nomura said:

“The BOK Governor Rhee stressed that future monetary policy will be affected by the Fed’s monetary policy stance and rising household debt […]. Does this change our view? Yes. In light of the BOK’s focus shifting back to the Fed, we delay the timing of the first rate cut to Q1 2024 (January), from Q4 2023 (October) previously.”

Goldman Sachs’ Goohoon Kwon and Irene Choi said:

“We continue to expect the BOK to begin a gradual easing cycle in Q1 2024 under our baseline macro forecasts and our US team’s views of the start of Fed easing in Q2 2024.”

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