Bank of Korea hikes interest rate by 25 bps, likely to hike again in 2019

The Bank of Korea, today, hiked its key interest rate by 25 basis points to 1.75 percent, consistent with consensus expectations. Some economists, before today’s decision, had argued that the South Korean central bank would continue to be on hold given the weakening momentum of economic growth and inflation.

Nevertheless, the Bank of Korea is seemingly worried about the widening rates gap against the U.S. as the central bank only hiked the interest rate twice over the last 12 months. However, today’s hike is believed to be a pre-emptive move. Indeed, the South Korean won softened after today’s rate decision, which is a typical “sell the fact” phenomenon.

“Looking ahead, the BOK is likely to take an overall cautious approach, which implies another 1-2 rate hikes next year as Fed would continue to tighten”, said Commerzbank in a research report.