South Korea’s November CPI annual rate fell sharply from 5.7% to 5%, but this is unlikely to change the Bank of Korea‘s policy stance. Bank of Korea Governor Changyong Rhee already mentioned last month that the base effect leading to a temporary slowdown in CPI inflation would not change the bank’s inflation outlook. In addition, South Korea’s core inflation rate remains high.
Therefore, the Bank of Korea is expected to maintain its policy of raising interest rates until early next year. ING believes electricity and gas prices will rise early next year, but growth in rents and service prices should slow. Therefore, inflation for the whole of next year is likely to weaken further. ING insists that the Bank of Korea will pause rate hikes until the second quarter of 2023 after a 25 basis point hike in February next year.
