Economist at UOB Group Ho Woei Chen, CFA, suggests the BoK could hike the policy rate by 25 bps at its November meeting.
“As expected, the Bank of Korea (BoK) kept its benchmark base rate unchanged at 0.75% today and reinforced our conviction for the second rate hike to take place in November, the last rate meeting for this year.”
“Two members (out of seven) had voted for a hike today while Governor Lee Ju-yeol said that it would be “good to consider an additional hike” next month if “the situation doesn’t deviate too much from the one the board is looking at” while highlighting worsening financial imbalances as the real interest rate is “far below” the neutral rate. We think the economic recovery in South Korea will be sustained as it moves to gradually ease COVID-19 restrictions. This will allow further interest rate normalisation into 2022. Around 55% of the population and more than 60% of adults were fully vaccinated. The country targets to vaccinate 80% of all adults by the end of October.”
“Improvements in economic outlook will provide the room for BoK to raise interest rate by another 25 bps in November. Thereafter, we expect a further 25 bps increase in 1Q22 which would have undone the total 75 bps rate cut due to the COVID-19 pandemic. Governor Lee’s term will end on 31 March 2022 and we see the likelihood for him to restore the base rate to pre-COVID level of 1.25% by then.”