BOK Governor Lee Ju-yeol's hawkish......>

KOREA RATES: BOK Governor Lee Ju-yeol's hawkish comments yesterday regarding the

likelihood of an interest rate hike have not shifted market expectations, which

continue to price in just 22bps of hikes over the next 12 months. 

- Governor Lee noted that "The accommodative monetary policy stance needs to be

adjusted if consumer prices hit the inflation target and economic growth

continues in line with the potential growth rate." His comments that the Korean

economy has grown in accordance with its potential growth based on the recent

economic indicators, and that inflation is expected to pick up indicate that the

central bank is ready to tighten when it next meets on July 12. 

- While a rate hike before year-end is highly likely, it may well turn out to be

a very mild hiking cycle as the 2-year swap market, currently at 2.00%, just

50bps above the current benchmark rate, looks very toppy. The contract has edged

lower in recent weeks despite the BOK's hawkish comments, and is approaching its

200DMA at 1.97%. A break below this would strongly suggest the BOK's tightening

cycle will be over after the next hike and would weigh further on the Korean

won.