The BoK may view this moderation positively. It remains uncertain, though, whether it’s sufficient for the BoK to implement a rate cut in August. In its previous meeting, the BoK cited financial instability for its decision not to lower policy rates. This may influence its decision regarding the timing of a future rate cut. In terms of inflation, expectations edged up to 2.5%, but still remain on a downward trend. Recent natural disasters may push up fresh food prices temporarily. But we still expect inflation to remain anchored around 2% level.
We expect the BoK to cut rates by 25 bp in October rather than in August. Going forward, we believe that any signs of continuation of moderation of housing prices, a US-Korea trade deal, and USDKRW moves will be watched closely by the BoK, making the timing of rate cuts highly data dependent.