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. Despite strong fundamentals and a huge current-account surplus, further KRW gains versus USD are expected to be more gradual after a 12% rally.

Front-loaded tightening and slower KRW gains

"Looking ahead, BoK maintained a tightening bias, but the pace of further hikes is likely to slow after the cumulative 50bp increase since July."

"BoK provided some forward guidance, by way of its new six-month rate projections, with the median forecast at 3.25%, implying one additional 25bp hike over the next six months."

"BoK is expected to pause in October and possibly November as it assesses the impact of the recent tightening."

"However, given the magnitude of the recent appreciation, further gains are likely to be more gradual and we could see consolidation for USD/KRW in the near term around 1,360-1,400."