VIEW: ING: No Change In May, Watching BoK Economic Assessment

ING note that “with governor-nominee Rhee Chang-yong's parliamentary hearing scheduled for 19 April, we will closely listen to his views on the Korean economy and inflation at the hearing. If things go smoothly, the next MPC meeting will be chaired by Rhee as the new governor. There will also be another member change in the MPC, as Lim Jiwon ends her term in early May. As mentioned earlier, we expect no change for the next meeting, but it is worth watching how the BoK assesses its future outlook of growth and inflation as it will release a revised macro outlook report.”

• “The negative impact of the Ukraine war and supply chain disruptions will feed through into data by July and August. As pipeline prices and global energy prices suggest, inflation will accelerate further into the second quarter of the year. On growth, export is expected to decelerate but be partially offset by improved domestic demand supported by expansionary fiscal policy and the reopening of the economy. We believe this will justify two more rate hikes in the second half of this year. However, once inflation begins to slow down in the third quarter of 2022, then BoK’s focus will shift to financial stability and growth. Also, BoK will be keen to watch whether rate hikes moderate household leverage, including mortgages. At this point, we believe that BoK will put a brake on the rate hike at 2% as we estimate it is an approximate borderline between normalisation and tightening.”