BNP Paribas: “3.25% in November to be the peak rate”... Doubts over semiconductor trickle-down effect [fn Market Watch]

[Financial News]  A foreign investment bank has forecast that the Bank of Korea’s November base-rate hike will effectively be its final tightening measure.
The analysis is that the case for further rate hikes is weakening as economic conditions diverge more sharply across industries, with the domestic recovery lagging despite the recent semiconductor boom.
According to investment banking industry sources on the 10th, Yun Ji-ho, a senior economist at BNP Paribas, said in a report that day that he expected the Bank of Korea to raise its base rate by 25 bp (0.25 percentage points) to 3.25% per annum on the upcoming 26th.
However, he expected the decision on whether to raise rates to be finely balanced, with one or two dissenting opinions calling for a rate hold.
The key question is the monetary policy path after the hike. BNP Paribas kept its forecast for the terminal base rate at 3.25%, judging that the spillover of the semiconductor boom across the broader economy would be limited and that the recovery in private consumption could also be slow.
In fact, growth in private consumption slowed in the third quarter from the previous quarter. The recent stock-market correction has also increased the risk of consumer sentiment weakening. Semiconductor prices, too, are showing signs of falling, but further confirmation is needed to determine whether this marks a change in trend.
The inflation outlook is another factor limiting further tightening. BNP Paribas’s inflation forecast is in fact lower than the Bank of Korea’s. This means that if price pressures are weaker than expected, there will be less need to keep raising rates.
Meanwhile, investment banking industry sources say that the burden of further rate hikes could grow if strong exports led by semiconductors fail to translate into a broad-based domestic recovery. One industry source said, “If the stock-market correction and slowing consumption coincide in particular, the Bank of Korea’s policy decisions could become more complicated as it weighs responding to inflation against supporting the economy,” explaining that “the key point to watch at the November meeting of the Bank of Korea’s Monetary Policy Board is not the rate hike itself, but the possibility of further tightening afterward.”
The source added, “Even if the base rate reaches 3.25%, if the gap between conditions in the semiconductor sector and the domestic economy does not narrow, the focus of monetary policy is more likely to shift toward assessing the economy than toward further rate hikes.” 


[email protected] Kim Kyung-a Reporter