South Korean Won: Rate hike support from exports and inflation – DBS

DBS economists Radhika Rao and Mo Ji expect the Bank of Korea (BoK) to raise its base rate to 2.75% from 2.50% in July, citing persistent CPI inflation above 3% and resilient growth. They highlight robust exports and investment linked to the AI (Artificial intelligence) boom and note that Korean Won weakness and portfolio outflows further justify tighter monetary policy.

Korean policy tightening backed by data

"The Bank of Korea is expected to raise the base rate to 2.75% from 2.50% in July."

"The BoK signaled in June that it remains prepared to tighten monetary policy despite the recent decline in oil prices following the easing of tensions in the Middle East."

"CPI inflation has remained above 3% yoy for two consecutive months through June, and is expected to stay around this level for the remainder of the year, supported by lingering cost pass-through, elevated inflation expectations, and second-round effects."

"On the growth front, the economy continues to hold up well, driven primarily by robust exports and investment amid the AI boom."

"Meanwhile, the persistent weakness of the KRW, against the backdrop of portfolio capital outflows, provides an additional rationale for a rate hike."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)