Bank of Korea likely to hold rates at 1.25 pct in August, says DBS Bank

The South Korean central bank, Bank of Korea, is set to meet this week for its policy decision meeting. According to a DBS Bank research report, the BoK is expected to hold rates at 1.25 percent on Thursday. Main focus is set to be policymakers’ latest comments on inflation. Against the backdrop of stable GDP growth, passage of a huge supplementary budget and a big rise in minimum wages scheduled next year, it will not be surprising to see the central bank urge vigilance against the risk of inflation in 2018.

However, the Bank of Korea might not shift to hike rates immediately. Policymakers should also want to watch the effect of the housing market regulations introduced by the government lately, stated DBS Bank. An easing in the housing market might have some negative spillovers in the wide economy that would be accompanied by a deceleration in household debt. This might, in turn, reduce the urgency of monetary tightening.

Moreover, the Bank of Korea is expected to pledge to monitor geopolitical developments during this week’s meeting. The effect of the recent North Korea-US tensions was focused in the financial markets, instead of the real economy. But a lasting period of uncertainties might impact the economy through depressing consumer/business sentiment and delating corporate investment decisions. Risks still need to be monitored on this front. Separately, a slew of monthly economic data would be out this week that is likely to paint a big picture of stable growth and stable inflation.

“Industrial production is projected to rise a mild 0.1 percent (MoM sa) in July. Exports are likely to maintain double digit growth (16.2 percent YoY) in August. Consumer prices, on the other hand, are expected to rise 2.2 percent in August, a similar rate as in the previous month”, added DBS Bank.

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