South Korea's central bank keeps the door open to another rate hike in August

The Bank of Korea's latest tone is being read as hawkish, and the chance of a second straight rate hike at the 27 August meeting remains alive, though it will hinge on incoming data.

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.

What this means for you
• For investors: If the Bank of Korea delivers a second straight hike in August, borrowing gets costlier and Korean markets and the currency could react, so stay cautious before placing bets.
• For borrowers: Higher rates usually mean bigger instalments on home and other loans, though the decision still hangs on the incoming data.

Questions & Answers

1. When is the Bank of Korea's next meeting?
The next Monetary Policy Committee meeting is scheduled for 27 August.

2. Could rates rise again in August?
Analysts say the chance of a second straight hike remains alive and cannot be dismissed, but it will depend on the economic data.

3. What did June's inflation data show?
In June, CPI fell 0.4% on the month, pulling the annual rate down to 3.5% from May's 4.2%.

4. How did core inflation behave?
Core inflation was flat on the month and eased to 2.6% year-on-year, with both figures coming in under consensus.

5. What did the July statement signal?
The July statement read more hawkish than before, signalling the chance of further tightening ahead.

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