ING’s Senior Economist Min Joo Kang notes that the Bank of Korea kept its policy rate at 2.5% and stressed a data-dependent stance as inflation pressures rise and GDP growth projections weaken. The report argues overall policy direction is still tilted hawkish, with supply shocks and weaker KRW raising inflation risks, and suggests the next move in rates should be a hike, potentially in July.
BoK holds but leans toward future hikes
“In its meeting statement, the Bank of Korea highlighted the challenge of balancing support for economic growth and curbing inflation. The BoK observed that price pressures have risen significantly since early March, with annual consumer price index growth likely to exceed February’s forecast of 2.2%. GDP growth, meanwhile, is now projected to fall below the earlier 2.0% forecast.”
“BoK Governor Rhee has consistently adhered to a principle: temporary external shocks do not warrant monetary policy responses. However, if such shocks start to raise inflation expectations and cause secondary effects, the BoK will adjust its policy accordingly.”
“The BoK now projects that both headline and core inflation will likely rise more than previously forecasted. The emphasis on high inflation sensitivity and upside risks to core inflation signals that the BoK is leaning towards a more hawkish policy stance, in our assessment.”
“If we’re right about supply constraints, which would have a larger impact on inflation than growth, the BoK is likely to respond with rate hikes. It could happen as early as July.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/bok-data-driven-path-to-possible-july-hike-ing-202604101417
