According to the most recent BoK event, the central bank could begin normalizing its monetary policy through interest rate hikes as early as October, according to Ho Woei Chen, CFA, Economist at UOB Group.
“The Bank of Korea (BoK) retained its benchmark base rate at a record-low of 0.50 percent today, as expected by consensus and our expectations. In contrast to the last meeting in May, when the decision to hold the rate constant was unanimous, one board member voted for a 25 basis point rate hike.”
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Despite the upsurge in domestic COVID-19 infections, Governor Lee Ju-yeol remained strong in his guideline for rate normalization to begin this year, signaling a possible hike as early as August. As a result, the BoK’s guidance leading up to the 26 August meeting, as well as the domestic COVID-19 situation, will be critical. This, we feel, is still predicated on keeping the domestic infection rate under control before it becomes a bigger burden on the economy.”
“The more contagious Delta variety has raised concerns about the economy’s near-term prospects. While we see the possibility of a rate hike in August given the Bank of Korea’s willingness to address financial imbalance issues, we maintain our base case assumption of rate normalisation starting in 4Q21 (likely in Oct as there is no meeting scheduled in September) with a 25 basis point increase. In 2022, we predict another 50 basis point rate hike to return the benchmark base rate to its pre-COVID level of 1.25 percent “”Recent.”/n
