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MNI STATE OF PLAY: Bank Of Korea Cautious Even As Prices Bite

TOKYO (MNI)

A slowing economy will outweigh a surge in prices for the Bank of Korea's policy meeting this week with the board extra cautious as well as it awaits the new governor to take the helm at the next review.

The policy interest rate is expected steady at 1.25% at the April 14 meeting, in which nominated candidate for governor, Rhee Changyong, still awaits confirmation after a National Assembly hearing and with a new government in place this year.

A sharp pandemic lockdown in Shanghai has slowed exports and overall trade from China, a major trading partner for South Korea, which may give room for pause in what is otherwise expected to be further tightening in the second quarter, MNI STATE OF PLAY: Bank Of Korea Poised For Q2 Rate Hikes.

INFLATION, GROWTH FACTORS

“The Inflation rate is at high levels, but the BOK may not be hurried to raise rates now ... taking the slowing Chinese economy into consideration,” said Kota Hirayama, senior economist in charge of emerging economies at SMBC Nikko Securities.

Hirayama also noted South Korea's inflation is lower than many emerging economies, but that crude prices are a key variable.

South Korea’s CPI rose 4.1% y/y in March from 3.7% in February, for the highest level since December 2011.

OFFICIAL VIEWS

The governor nominee, a senior IMF official, said recently that he sees Inflation in South Korea during the first half of 2022 outpacing the BOK's 3.1% forecast.

Outgoing governor Lee Ju-yeol's last board meeting highlighted financial stability risks from high levels of household debt and pressure on the won from expected U.S. Fed tightening through 2022.

And BOK senior deputy governor Lee Seungheon said earlier this month's policy review will be challenging.

One of the five BOK deputy governors Lee Hwanseok has also said that the BOK needs to restrict inflation expectations as the upside risk to prices has increased.

A source familiar with BOK operations however said there is a question on whether a rate hike now would be effective in curbing inflation caused by cost-push factors from higher energy and raw material costs

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MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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