Money in Korea

Korea - Money

BoK keeps rate unchanged in October, but hints at additional hike in November

At its meeting on 12 October, the Bank of Korea (BoK) kept the base rate at 0.75%, following a 25 basis-point hike in late August. The decision, although expected by market analysts, was not unanimous, with two of the seven board members voting for an additional hike.

The Bank’s split decision came amid a continued economic recovery and elevated price pressures, with inflation expectations remaining above target. However, the ongoing wave of Covid-19 cases in the region poses a risk to the recovery, calling for prudence in the pace of monetary policy normalization and likely tipping the board in favor of a hold.

In its press release, the BoK kept its hawkish tone, but noted it will adjust the degree of monetary policy accommodation “appropriately” rather than “gradually” as stated in its August meeting. This seems to suggest a shift in strategy from a consistent normalization of policy to a more ad-hoc approach regarding rate hikes. That said, the lack of unanimity in this month’s decision increases the chance of an additional hike in November. Indeed, in the accompanying press conference Governor Lee hinted that the BoK could raise rates at its next meeting if the economy continues to recover as expected. Meanwhile, the Bank is likely keeping a close eye on the Federal Reserve, which has signaled it may begin tapering next month.

Analysts at ANZ see a hike before the end of the year, commenting:

“Overall, with financial imbalances still rising, inflation numbers signalling persistent price pressure and economic data indicating that the recovery remains intact, the stage is set for a rate hike in November, in our view.”

The next monetary policy meeting will be held on 25 November.

FocusEconomics Consensus Forecast panelists see the base rate ending 2021 at 0.89% and 2022 at 1.23%.