South Korean Won: BoK front-loading hikes as KRW consolidates – Commerzbank
Commerzbank’s Charlie Lay reports the Bank of Korea has delivered back-to-back 25bp hikes to 3.0%, front-loading tightening as growth and core inflation forecasts rise. The bank signals one more hike over six months but may pause to assess effects.
South Korean authorities have delivered consecutive 25 basis point hikes to the Bank of Korea's benchmark interest rate, now at 3.0%. This front-loading of rate hikes comes as growth forecasts and core inflation forecasts rise. While the bank signals one more hike over the next six months, it may pause to assess the impact of recent tightening measures.
Despite the strong fundamentals and a massive current account surplus, further gains for the South Korean Won (KRW) against the US Dollar (USD) are expected to be more gradual after a 12% rally. The Bank of Korea maintains a tightening bias, with a median forecast of 3.25% over the next six months, implying one additional 25 basis point hike.
BoK is expected to pause in October and possibly November to evaluate the effects of the recent rate hikes. However, given the magnitude of the recent KRW appreciation, further gains are likely to be more gradual, potentially leading to consolidation in the USD/KRW exchange rate around the 1,360-1,400 range.
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