South Korean Won: Inflation frames the BoK tightening backdrop – MUFG

South Korea’s core inflation held at 2.8% year-on-year, above consensus. MUFG notes that headline Consumer Price Index (CPI) inflation eased, but underlying price pressures remained persistent. Alongside robust growth and booming semiconductor exports, this should sustain expectations of further tightening by the Bank of Korea (BoK). For the South Korean Won (KRW), uncertain foreign equity flows counter support from the interest rate backdrop and an expanding trade surplus.

2.8% Core Inflation: Rates and Trade Drive Korean Won Outlook

"South Korea’s inflation data reinforced the contrast between easing headline inflation and persistent underlying price pressures."

"Headline CPI moderated to 2.8%yoy in October from 2.9%, while core inflation remained at 2.8%yoy, above consensus."

"Combined with strong growth and the semiconductor export boom, sticky core inflation should keep expectations for further BoK tightening alive."

"For KRW, that relatively supportive rate backdrop adds to the fundamental support from Korea’s increasingly large trade surplus, although foreign equity flows remain a pivotal offset."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)