Another Hawkish Hold

The BOK left rates on hold as widely expected at 3.50%. The statement strikes a hawkish tone though, with the central bank stating that rates will be restrictive for a considerable period, while making a judgement whether to raise the base rate further.

• In terms of forecasts, the BoK's GDP and inflation forecasts for 2023 were left unchanged, at 1.4% for growth and 3.5% for headline CPI. 2024 GDP growth expectations were nudged down to 2.2% from 2.3%, while headline CPI was left unchanged at 2.4%. The core inflation forecast for 2023 was nudged up to 3.4% from 3.3%.
• The central bank expects August inflation to print around 3% and remain above target for a considerable time. This leaves the board making a judgement regarding the need to raise rates further.
• Factors deciding this path include inflation, financial stability, economic downside risks, the impact of cumulative rate rises, monetary policy offshore and household debt growth.
• The growth recovery is expected to be moderate, with household spending improving modestly, while the drag from export growth should subside. Considerable uncertainty remains over the outlook though, with China and the timing of the tech cycle rebound highlighted.
• House prices and household borrowing were highlighted as watch points.