Bank of Korea unlikely to hike rates in August, may hike in October

The Bank of Korea is set to meet this week for interest rate decision. Following the extremely weak July jobs report, official commentary from the government turned noticeably more dovish. Local media had also reported that the government was looking at 9.7 percent rise in the 2019 budget, which would be the largest rise in 10 years, noted Barclays in a research report.

Given this backdrop, it might be difficult for the Bank of Korea to sound hawkish during its meeting. It is unlikely that a majority of the board members would support a rate hike. However, the central bank is expected to keep the rate hike window open to minimise the risks from widening U.S.-Korea rate differentials.

“We still expect the BoK to hike rates in October, but see risks of a delay if the US tariffs implemented in July and August start to weigh on Korea’s activity indicators and there is little improvement in the jobs data”, added Barclays.