MNI STATE OF PLAY: BOK Eyes 25bp Hike As Inflation Rises

The Bank of Korea looks set to raise its benchmark interest rate by 25 bps to 2.50% on August 25 as policymakers continue to prioritize fighting inflationary pressure, as the nation’s consumer price index accelerated to 6.3% y/y in July, the highest level since November 1998’s 6.8%.

Contacts have suggested to MNI that the BOK could stand pat on monetary policy as upward pressure on inflation rate has peaked out and the BOK needs to focus on a weaker economy. Yet others in the financial markets point to the central bank taking the inflation data head on and perhaps hiking 50 bps for a second consecutive meeting.

Governor Rhee Chang-yong has said that the BOK would raise the rate gradually over time, hiking it by increments of a quarter percentage point, if inflation slows after peaking in the late third quarter or early fourth quarter. Another conundrum for the central bank is the decline in consumer sentiment, putting downward pressure on domestic demand, but driven by rising inflation.