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Free AccessMNI STATE OF PLAY: BOK Steady In August, But Hike Calls Grow
The Bank of Korea is mostly expected to hold policy steady at its Aug. 26 review amid higher Covid-19 infections, but pressure is growing for a near-term rate hike, MNI understands.
The BOK left its benchmark rate unchanged at an historical low of 0.5% in July, but noted inflation and financial imbalances are still risks as the central bank monitors the progress of vaccinations and social curbs to stem infections.
BOK Chairman and Governor Lee Juyeol has flagged future rate hikes, saying that the bank should normalize its monetary policy in an appropriate timing if the economy continues recovering. Lee in July also said that the bank stands ready to scale down its easy policy amid accelerating inflation rate and growing financial imbalances.
The BOK as of now is one member short on the seven-member board, and there could be a six-member meeting unless Governor Lee appoints someone fast.
Two leading Japanese think tanks in July were split on an expected rate hike timing, see: MNI: BOK Rate Hike Timing Views Split Amid Covid-19-Analysts.
Kota Hirayama, senior economist in charge of emerging economies at SMBC Nikko Securities, said the BOK language in the last review pointed to rate hike pressures and it would not be a complete surprise this time, but said that the BOK "will likely take a wait-and-see attitude this month, judging from the spread of coronavirus recently."
"Domestic demand will weaken significantly in the third quarter," Hirayama said, adding that that is unlikely to continue into the fourth quarter as vaccinations are accelerating.
New Zealand this month held rates steady against rising price pressures because of new lockdowns imposed after new Covid-19 cases. If the BOK, facing similar pressures, then hiked in August, it would be the first Asian economy to begin monetary tightening.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.