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Pullback Considered Corrective


Holding Above Recent Lows


BLOCK, Large 3Y Midcurve Put Condor

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The minutes from the July BoK meeting were widely seen as hawkish, though there were indications of concern around the fourth wave of coronavirus.

  • JP Morgan says: "Minutes of the July monetary policy meeting suggest that most MPC members agree that BOK policy rate should be raised sooner rather than later. Including Mr. Ko who cast the dissenting vote calling for a 25bp rate hike in July, five out of six MPC members (excluding the governor whose views are not included in the minutes) commented on the need for a policy rate hike in the near future. They broadly agreed that GDP growth will likely reach around 4.0% in 2021, consistent with the central bank's forecast in May, notwithstanding the 4th coronavirus wave. Separately, a recently released detailed vaccination plan for August suggests that supply bottlenecks will be reduced meaningfully. In all, we reaffirm our baseline view of a BOK liftoff in August followed by a second hike in November, although the precise timing remains a close call given high uncertainty on the coronavirus outlook.
  • Following the minutes Goldman Sachs has bought forward its expectations of a first rate hike to August from October previously: "we now expect that the BoK will initiate the hike cycle in the August meeting to imply more front-loaded follow-up actions; August 2021, 4Q21 and 3Q22 (vs our previous forecast of October 2021, 1Q22 and 4Q22). The risk to the August action may be from the uncertainty in the COVID-19 resurgence situation and its impacts on activities, as the hawkish members (senior deputy governor, Cho, Lim, and Suh) all cited COVID-19 uncertainty as a factor to hold them from a rate hike decision in July. Yet if based on the high-frequency indicators at least so far, the drag on service activities from the resurgence is likely to be transitory and at a similar degree as in the previous wave earlier this year."