South Korea: BoK could increase rates in November – UOB

Economist at UOB Group Ho Woei Chen, CFA, assesses the prospects of another interest rate hike by the Bank of Korea (Bok) in Q4 2021 on the back of high inflation and solid recovery.

Key Takeaways

“South Korea’s headline inflation continued to stay above Bank of Korea’s (BOK) 2% target in August at 2.6% y/y, unchanged from July but was higher than Bloomberg’s estimate of 2.4%. On a month-on-month comparison, inflation picked up to 0.6% from 0.2% in July.”

“South Korea’s 2Q21 GDP growth was revised marginally higher to 6.0% y/y, 0.8% q/q from 5.9% y/y, 0.7% q/q in the advance release. This was due to stronger fixed investment while private consumption and exports/imports of goods & services were in line with the advance numbers. This brought 1H21 GDP growth to 4.0%.”

“We maintain our forecast for the BoK to pause in October before delivering another 25 bps rate hike in November (the last meeting for 2021) to bring the benchmark base rate to 1.00%. High growth in household loans and property prices will keep the central bank’s focus on prevention of financial imbalances as long as South Korea’s economy stays on the path of recovery.”