Nothing To Shock In BoK Statement

Nothing to really surprise in the BoK post-meeting statement, with the Bank affirming the idea that inflation will now run at higher than previously expected levels: “Looking ahead, it is forecast that consumer price inflation will remain high in the 4% range for some time, and run substantially above the February forecast of 3.1% for the year overall. Core inflation is forecast to remain around 3% for a considerable time.”

• The Bank once again noted that the Korean economy has continued to recover, with exports sustaining “their buoyancy”. Additionally, it noted that “private consumption has recently shown modest improvement thanks to the easing of domestic COVID-19 restrictions, after having moderated.”
• It also noted that “going forward, the economy is likely to sustain its recovery albeit partly affected by the Ukraine crisis, as exports are expected to continue their solid trend of growth while private consumption is likely to improve. GDP growth this year is projected to be somewhat below the February forecast of 3%.”
• The downgrade in the growth outlook filtered through into the guidance paragraph, which also contained the reference to the economy continuing its recovery, vs. the previous phrasing re: “sound growth.”
• It also changed the focus re: risks in its guidance from virus-based matters to “domestic and external conditions.”
• The Bank noted that “household loans have decreased slightly and housing prices have fallen slightly, especially in the Seoul metropolitan area.” This will please the Bank, but there is still more work to do on that front.
• Ultimately, further tightening remains on the table, as the BoK stated that “In this process the Board will judge when to further adjust the degree of accommodation while thoroughly assessing developments related to COVID-19, the risk of a buildup of financial imbalances, monetary policy changes in major countries, geopolitical risks, and the trends of growth and inflation.”
• This guidance was little changed vs. the previous guidance on the direction of monetary policy, with geopolitics now included in the list of considerations (the Russia-Ukraine conflict provides well-documented uncertainty, that was worth including).