Won looks to BoK for hawkish signal
SINGAPORE: The Bank of Korea’s (BoK) policy meeting on Thursday couldn’t come at a better time.
As the won slid to a one-year low last week, traders will wait to see if the central bank delivers another hawkish signal to temper the slide.
Until last week, expectations the BoK is on the cusp of its first rate hike in 2018 largely buffered the won from the impact of rising US rates and the escalating Sino-American trade war.
But as Treasury yields soared to seven-year highs and global stock markets tanked, the won may be capitulating.
Renewed won weakness may further stoke price pressures after the September inflation rate accelerated toward the BoK’s 2% target.
Governor Lee Ju-yeol reiterated this month the central bank’s stance to reduce policy accommodation to address mounting financial imbalances.
With the interest-rate market almost fully-priced for a 25 basis point hike by year-end, all eyes are on the Oct 18 meeting to see if the central bank will act now or wait till next month.
Economists are split. The BoK last raised its seven-day repo rate in November, boosting it by 25 basis points to 1.5%.
The merits of a stable won can’t be underestimated as the US releases its semi-annual foreign exchange-manipulator report in coming days. South Korea, along with China, were on the watch list in April’s report.