50bps Hike Risks Growing For July?

Inflation remains the number one concern for the BoK, as price pressures continue to exceed forecasts. Risks around a 50bps hike in July are growing, although the BoK doesn't appear to be on any predetermined path.

• BoK Governor Rhee stressed the need to address inflation pressures. These comments came after the BoK stated earlier that inflation is likely to top the central bank's forecast of 4.5% for 2022, which was only revised higher last month
• Governor Rhee stated he was unsure if June/July inflation would top 6%.
• Whilst Rhee stated inflation was not the only consideration for monetary policy, the concern the BoK has is that higher inflation expectations become embedded in the economy.
• Such a backdrop points to risks of a 50bps hike at the next policy meeting in July. Although, the BoK doesn't appear on any predetermined path as Rhee stated there is still 3 weeks before the next policy meeting.
• He also wouldn't be drawn on neutral policy levels, although he doesn't believe the current policy rate of 1.75% represents neutral. Perhaps that may change though if we get above 2% and closer to 2.50%.
• Current market pricing has the policy rate close to 2.20% in 3 months, which encompasses the next 2 policy meetings in July and August.
• KTB futures are away from yesterday's highs, but couldn't break below 109.00 for the 10yr (last 109.45), while the 3yr is back above 103.00, away from earlier lows just ahead of 102.80.