BoK Still With More Work To Do, Eyeing Capital Flow Pressures

The BoK policy statement highlights the difficult balancing act the central bank faces, although bringing inflation back under control remains the number one goal. This suggests further rate hikes ahead, which is in line with the market base-line.

• One of the more interesting take-aways from the policy statement was in the final paragraph, which mentioned that capital flow pressures will be monitored from a financial stability standpoint. This was in the context of the size and pace of further rate hikes.
• This hints at concern around the weaker won trend (which was also highlighted in the policy statement) and may see FX play a greater role in future policy decisions.
• Overall, further rate hikes are expected, with the BoK stating that rising core inflation and elevated inflation expectations outweighs growing downside risks to the economic outlook.
• Even with headline inflation pressures expected to moderate, inflation is still expected to remain in the 5-6% range for quite some time.
• On the growth backdrop, most the risks rest with external conditions, which is weighing on export demand. Domestic conditions remain resilient for now.