Commerzbank analysts report that Bank of Korea Governor Shin Hyun-song sees inflation, exchange rate and financial stability pointing policy in the same direction, ahead of the 22 October meeting where rates may be left unchanged after two hikes. He views further Won gains as desirable, while USD/KRW is steady around 1,342 and the Won has rallied 16% versus the Dollar since early July.

Governor backs Won appreciation stance

"Bank of Korea (BoK) Governor Shin Hyun-song stated that inflation, the exchange rate, and financial stability all point monetary policy in the same direction. These comments come ahead of BoK’s next meeting on 22 October, where it could leave rates unchanged after back-to-back 25bp hikes in July and August."

"Governor Shin also stated that further gains in the won would be desirable as it would shift the balance towards the domestic economy. This would help smooth the uneven growth pattern which has been led by AI-related exports. From a growth perspective, the electronic upcycle has more than offset the drag from the Middle East conflict."

"However, Governor Shin noted that stronger demand could also add to cost pressures from higher global crude oil prices. This suggests that BoK could prioritise flexibility in the near term and remain data dependent."

"In FX, USD/KRW held steady at around 1,342 yesterday. The KRW has rallied 16% vs the USD since the low in early July, supported by a strong trade surplus, exporters' repatriation inflows, and narrower interest rate differentials."

"There were also reports in the local media that the government is considering cutting treasury bond issuance to stabilise the bond market. It is reviewing two options. The government could either cut issuance by KRW5tn in each of the November and December auction, or reduce it by a total of KRW5tn through December. This comes after an earlier KRW5tn cut in October. The 10Y Korea Treasury Bond yield has fallen by around 30bp since the high in late September of 4.52% to 4.23%."

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