VIEW: ING: Maintaining View In Wake Of 50bp Hike

ING “agree with Governor Rhee’s view on inflation in general. We expect headline inflation to continue rising for a couple more months from the current 6% and will probably start to slow in the fourth quarter. While the risk of rising global commodity prices still exists, we expect to see some impact from earlier rate hikes, which will decelerate the monthly growth of demand-side inflation over time. However, compared to the BoK’s view that next year’s GDP will exceed the potential growth rate, we are somewhat pessimistic as it is expected to be lower than potential. Next year, both monetary and fiscal policy will become restrictive while external demand conditions are expected to worsen further. The government recently announced that it would legislate fiscal rules, stating that maintaining fiscal soundness at a good level over the medium term is a policy priority. That’s why we believe that the BoK will enter an easing cycle by the end of next year.”