VIEW: Barclays: Time For The BoK To Recalibrate Its Policy Function

Barclays note that “with Q4 GDP registering a contraction, we believe the Bank of Korea (BoK) has to shift its gears for a policy turnaround and a 25bp cut in Q4 23."

• “In our view, the BoK governor's clearly more dovish tone in the foreign correspondents club meeting - compared with the post-Monetary Policy Committee press conference just a week earlier - underscored the BoK's concern about the combination of a sharper-than-expected slowdown in external demand and a moderation in domestic demand momentum. This suggests a gradual recalibration of the bank's policy function towards balancing growth, inflation, and financial stability, and away from the focus on curbing inflation.”
• “Our base case remains for the BoK to remain on hold through Q3 and a 25bp cut in Q4, as early as the October meeting. We continue to believe the hurdle for additional hikes is high.”
• “Going into H2, we expect the MPC's discussion to become more focused on risks to growth. In our baseline, we do not expect a substantial easing cycle into 2024, given our view of a pickup in exports and investment in H2, as well as structural financial imbalances such as high household debt and an over-leveraged corporate sector. That said, risk of additional cuts could increase.”