VIEW: J.P.Morgan Frontload Hike Calls, No Adjustment To Terminal Rate, Yet

In the wake of yesterday’s BoK rate hike J.P.Morgan note that “the BoK sees more sustained price pressure than before, which should be the major factor for the expedited policy rate hike this month.”

• “Meanwhile, we defer any possible re-assessment on the terminal policy rate level to later opportunities such as MPC meeting minutes releases and the new governor’s press conferences, as we believe that signal value from this week’s press conference may need to be faded given the upcoming changes in the MPC members (new governor’s initiation of term, and hawkish member Lim’s retirement on May) and the rising uncertainty in economic forecasts. That said, we believe that MPC would stay on the previously signalled gradual policy rate normalization path in the near term albeit the downside risk in growth conditions, as the bar for stopping the hike cycle likely has been raised with higher trend inflation (or medium- to long-term inflation expectation); while the BoK may be less aggressive in policy normalization than major foreign central banks in the medium term over the next year. That is, the BoK may have room to conclude the hike cycle earlier (or at less restrictive level) than the other central banks after its relative front-running hike actions since last year.
• “In all, despite the upward adjustments in our policy rate expectations for major central banks and Korean inflation outlook since February (thus implying an upside risk to our terminal rate forecast made in February), we maintain 2.25% for the end-2023 policy rate forecast. Yet, in terms of timing to reach 2.25%, we front-load the hike timings by a quarter to Q123; reflecting the likely hawkish bias in the near term with an elevated inflation pressure, yet at the same time the abovementioned room to conclude the hike cycle at lesser restrictive level. Again, the call is subject to re-assessment after MPC member changes and more clarity about the impact of geopolitical developments on growth and inflation.”