Economist at UOB Group Ho Woei Chen comments on the upcoming BoK meeting later this month.

Key Takeaways

“Both the headline and core (excluding agriculture and oil prices) inflation strengthened in Oct. The more worrying was core inflation which rose to a fresh high since Feb 2009.”

“We expect headline inflation to stay above 5% until Feb 2023 before a high base effect sets in and estimate inflation to average 5.2% for 2022 and 3.5% for 2023.”

“The stronger than expected advance GDP in 3Q22 has not changed our more pessimistic economic outlook for South Korea. High frequency data including the S&P Global South Korea manufacturing PMI and exports in Oct are in line with this outlook while there are also risks that the private consumption recovery could stall as domestic interest rates rise to a decade high.”

“The monetary policy decision on 24 Nov will be the last for the year and the next meeting is scheduled on 13 Jan 2023. We continue to see the “terminal” base rate at “around 3.50%” given higher Oct inflation and Fed indicating in Nov FOMC that the ultimate level of interest rates in the US will be higher than previously expected.”

“However, with a slowing economy and rising interest rate adding to strains in the credit market, the BOK might have to take smaller steps ahead. Thus, while we see another 50bps hike (similar to Oct) as imminent in Nov to bring the base rate to 3.50%, the BOK may decide to dial down the magnitude and hike in two steps instead, by 25bps each in Nov 2022 and Jan 2023.”