The BOK will decide on its policy rate Thursday.
The BOK has held the policy rate steady since January 2023. (See MNI BOK WATCH: More Evidence Needed To Cut Rates, Says Rhee)
CPI NUDGES HIGHER
South Korea’s consumer price index rose 2.6% y/y in July, accelerating from 2.4% in June, which was the lowest level since July 2023 when it also rose 2.4%. The measure was 0.3% higher over the quarter, up from a 0.2% contraction in June. (See chart)
The governor's assessment on the balance between the economic slowdown and inflation will also be important, a separate person familiar with economic activity and monetary policy noted. While the BOK must support the economy, it also has to consider rising house prices, making a cut more difficult at present, he said, noting any dovish hint of a reduction later in the year will attract considerable attention.
SLOWER ECONOMY
South Korea's economy contracted 0.2% in the second quarter for the first fall since Q4 2022 due to weak consumption and capital investment and reversing from Q1's 1.3% growth.
Exports rose 13.9% y/y in July for the 10th straight rise following 5.1% in June, thanks to strong exports of semiconductors, which rose 50.4%. However, domestic demand, such as private consumption, remained weak on the back of high interest rates and financial debts.
The Korea Development Institute, the nation's leading think tank, said production and exports were driven by semiconductors but warned of weaker retail sales and capital investment, which would restrict the economic recovery.
The BOK board will also meet Oct 11 and Nov 28 this year.