BoK likely to raise policy rate by 25 bps to 1.75 pct, aimed at protecting nation’s financial stability: Scotiabank

The Bank of Korea (BoK) is expected to raise its monetary policy rate by 25 basis points to 1.75 percent at its upcoming meeting on Thursday, with an aim to protect the nation’s financial stability, according to the latest research report from Scotiabank.

On October 7, BoK Governor Lee Ju-yeol reiterated that the central bank’s previous stance to reduce policy accommodation remains intact in order to address mounting financial imbalances.

In addition, South Korea’s CPI inflation rose to 1.9 percent y/y in September from 1.4 percent a month ago and is expected to increase further on the back of the base effects in the rest of the year.

The nations’ unemployment rate fell to 4.0 percent in September from 4.2 percent in seasonally adjusted terms as the number of employed rose by 45,000 people from a year earlier, marking the biggest increase since June.

The KRW ND IRS market has priced in a 25 bps rate hike within three months. If the central bank decides to maintain the status quo the day after tomorrow, a November rate hike will be delivered, the report further opined.

On the FX side, the KRW is likely to catch up with gains in the THB, particularly if taking into account the BoK’s potentially hawkish stance and emerging signs of easing US-China tensions.

"We maintain our short USD/KRW position targeting 1,120 as local exporters are going to sell dollars when approaching the month end," the report commented.