Significant Uncertainties Going Into Next Meeting, Fed Important Factor

BoK Governor Rhee’s comments at the press conference suggest that the central bank is split and in the face of considerable uncertainties has not yet decided what it will do on November 24.

• Rhee disclosed that “multiple” members see the terminal rate around 3.5%. As the BoK was one of the first global central banks to hike, then it looks like it also might be one of the first to pause.
• While he said that the BoK won’t follow the Fed, it will be looking very closely at US developments, the pace and size of capital outflows and UK financial markets. With the FOMC currently expected to hike a further 75bp in November, there is a risk that the BoK may go another 50bp. But given the dovish tone of the statement, growth concerns may turn this to 25bp.
• Rhee revealed that 2 members voted for 25bp hikes because of growth concerns. He also said that the central bank has increasingly worried about global growth.
• There was discussion of a 75bp hike but that was rejected in favour of 50bp due to the high number of variable rate loans. The inflationary impact of the weaker won was a “major” reason for the step up in hikes but not the only reason.