As expected, inflation eased in November. There are still some upside risks, given the rebound in import prices and the continued strength in personal services inflation. For those to become interesting, export growth needs to pick-up powerfully, but the leading indicators don't look so strong yet.
The BOK was more doveish today than we'd expected, removing one of the two previous references in the statement about whether to raise rates further.
The bank has made clear that the hurdle for another hike is high, and the BOK will most likely remain on hold tomorrow. But we think that the risk of a hike will remain on the table, with actual change being determined by the export upturn in the next few months.
Services activity, which supported the economy as exports and construction slowed in 2021-22, is now fading. But unemployment remains low, while exports and real estate have bottomed out. There still aren't strong reasons to think the BOK will cut, even as the bank is reluctant to hike again.
Headline CPI inflation in Korea ticked up again in November. Sequential core rose for the fourth consecutive month, with both public- and private-service inflation rising. The rebound in headline will probably fade this month, but the stickiness of core leaves little room for the BOK to relax.
The October-November sentiment surveys from the BOK.
In a unanimous decision, the BOK made no change to policy today. It said inflationary pressure was a bit stronger than it had previously forecast, but didn't change its growth outlook. The main shift in the bank's language was to stress the uncertainty around the outlook.
In the run-up to the BOK meeting later this week, a summary of the macrocycle in Korea and our thinking on the central bank.
Inflation in Korea rose again in September, picking up to 3.7% YoY. Core inflation was flat YoY, but picked up sequentially. With US rates still so high, our model points to a high risk of further BOK tightening.