25bp Hike Pace Desirable Going Forward, But Larger Rises Not Ruled Out

Below are some of the key take aways from BoK Governor Rhee's press conference. The main message is bringing inflation lower remains the key objective, particularly with headline pressures running at 6%.

• A 25bp hike pace is desirable going forward, but much depends on how the inflation picture evolves. The BoK Governor stated if inflation proves to be stronger than expected, more aggressive rate hikes (i.e. 50bps) could be delivered.
• He stressed South Korea is not in the same situation as the US from an inflation standpoint, therefore doesn't need to match the Fed in terms of the size of rate moves.
• Inflation is expected to peak in late Q3/early Q4, although much uncertainty rests around the outlook. Longer term inflation expectations remain anchored.
• The 2.25% policy rate is towards the lower end of the neutral range, although Governor Rhee is not sure policy would be restrictive with 1-2 more hikes.
• Market pricing of a 2.75-3.00% policy rate by year end is reasonable.
• Downside risks to growth are emerging, but growth is expected to remain above 2% heading into 2023. Falling below 2% is considered a low probability at this stage.
• The central bank is also considering the impact of the weak won on domestic inflation.