Economists at Credit Suisse think the Bank of Korea will be comfortable in proceeding with hiking rates on 26 August despite elevated COVID-19 cases. USD/KRW downside move is set to be minimal in this case.
The BoK board remains focused on macroprudential risks
“We still expect a 25 bps hike from the BoK, given that South Korea’s economy is relatively insensitive to the government’s ‘soft lockdowns’ and given that the BoK’s MPC members are focused on macroprudential risks and export growth.”
“Although the RBNZ decision marginally pared back expectations for BoK tightening, the KRW curve still prices in a hike. As such, we think the USD/KRW downside move will be minimal if the BoK hikes.
“We think USD/KRW will follow the direction of USD/CNH, albeit at a wider range of 1150-1180, now that investor sentiment towards North Asia has become less pessimistic.”
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