Bank of Korea likely to keep policy rate on hold in July

The Bank of Korea is set to meet this month for its monetary policy decision. According to a Scotiabank research report, the South Korean central bank is expected to stand pat in July before hiking its policy rate in August to protect the country’s financial stability.

The headline consumer price inflation eased in the month of June to 1.49 percent on a year-on-year basis from 1.54 percent seen in May. This was below market projection of 1.7 percent. The headline inflation is likely to ease further in the coming months, especially in the period of August to October on the back of the base effect.

The 10Y KTV yield fell in the month of June in line with a lower KOSPI share index and a weaker KRW, indicating the safe-haven status of local government bonds. Foreign investors added to their holdings in South Korean listed bonds by USD 7.14 billion last month, while pulling out USD 1.15 billion of funds from local equity markets.

“The KRW is expected to remain susceptible to external uncertainty including the US-China trade spat and geopolitical situation on the Korean Peninsula”, added Scotiabank in a research report.