South Korea: Is the Bank of Korea Tightening Cycle Over? — UOB

Ho Woei Chen, an economist at UOB Group, assesses the latest Bank of Korea (BoK) monetary policy meeting.

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“As expected, the Bank of Korea (BOK) raised its benchmark 7-day repo rate by 25 basis points to 3.50% (13 Jan), the highest level since December 2008.”

However, the interest rate decision was not unanimous as 2 members of the Monetary Policy Council voted to keep the interest rate unchanged in January. Board members also expressed differing views on the interest rate outlook, with 3 of 6 (excluding Governor Rhee) indicating the possibility of a 3.75% “terminal rate.” This is a change from the previous meeting in November, where the same number indicated they saw the ‘terminal rate’ at 3.50%.”

Barring a change in the trajectory of global inflation, where price growth is expected to slow this year, we stand by our view that the latest rate hike has signaled the end of the BOK’s tightening cycle. “

“Indicating how quickly the economic outlook has deteriorated, the BOK suggested it may further lower its GDP forecast in February’s revision, from the current 1.7% for 2023. The inflation outlook remains largely intact based on the assessment of the BOK.”