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Goldman On Post-Election Korea Macro

SOUTH KOREA

Goldman Sachs note that With policy clarity following the election and rising macro risks from Russia/Ukraine conflict, we are updating our macro views. We revise down Korea's growth forecast for 2022 by 40bp to 2.8%, given adverse growth impact of the oil shock on global demand and domestic demand. We revise up our CPI inflation forecast by 60bp to 3.6% for 2022, largely on sharp increases in commodity prices, although the upside could be moderated by further cuts in fuel taxes, an extended freeze of utility prices, and oil and agricultural goods inventory releases. For 2023, we keep our growth forecast at 2.7% and revise up the inflation forecast marginally to 2.2% on a base effect.”

  • “With rising downside risks to growth from the war in Ukraine, we continue to expect the Bank of Korea to slow down the pace of policy rate hikes. Given that the BOK was the first in the region to raise the policy rate in August, and has raised rates by 75bp cumulatively over past six months, we expect the central bank to go for just two 25bp hikes for the remainder of this year (less than what is priced in), most likely in Q3 and Q4, although the hike timing will depend on decisions of the new central bank leadership, which is likely to be in place before the May MPC meeting. While the policy rate is currently negative in real terms and will likely remain so, per our forecast, until mid-2023 given further inflation pressure from surging commodity prices, the levels of inflation-adjusted policy rates should be broadly in line with those in other mature economies with high sovereign credit ratings. We also continue to expect the pace of policy rate hikes to decelerate in 2023 along with a gradual easing in inflation pressure. We envisage total 50bp hikes spread out over the course of 2023, well coordinated with steady tapering of pandemic support measures, including loan maturity extension and interest deferrals granted for SMEs and SOHO businesses.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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