Markets are now watching South Korea's central bank, the Bank of Korea, ahead of its next policy meeting. Analysts believe the bank has kept the door open to a second consecutive rate hike at the Monetary Policy Committee (MPC) meeting on 27 August. The final call will depend on incoming economic data, but the possibility cannot be brushed aside.
That reading comes from commentary by economists at Societe Generale. Their conclusion is that the Bank of Korea has left room for another rate increase at the August meeting, even though whatever it decides will be driven by the data.
A signal from the Governor's answer
When Governor Shin was asked about the possibility of raising rates at two meetings in a row, his response led analysts to conclude that the risk of another hike at the 27 August meeting cannot be dismissed. In short, it sounded like an indirect signal that the central bank remains open to a back-to-back rate hike in August.
Alongside this, the July MPC statement read more hawkish than before. The tone of that statement pointed to the chance of further tightening ahead. When a central bank strikes a hawkish note, it usually means it is inclined to keep rates high or push them higher to rein in inflation.
What the inflation numbers show
The price data, on the other hand, tells a slightly different story. In June, the Consumer Price Index (CPI) fell 0.4% on the month. That was the largest one-month decline since April 2020. The drop dragged the annual inflation rate down to 3.5% from May's 4.2% and snapped a three-month streak of accelerating prices.
Core inflation, which strips out volatile items, went nowhere over the month. On an annual basis it eased to 2.6%. Both figures came in under consensus expectations.
What comes next
The big question now is what the 27 August meeting delivers amid softening inflation on one side and a hawkish central bank on the other. Because Governor Shin has left the door open to a second straight increase, attention will stay fixed on the economic data due in the coming weeks, since that is what will decide whether the central bank moves again.
