BoK Rate Hike Supports KRW, But Further Gains Uncertain

The Bank of Korea (BoK) has delivered its second consecutive interest rate hike to 3.0% in an effort to keep a tightening bias, which is supporting the South Korean Won (KRW) against the US Dollar (USD).

The move comes after KRW saw a sharp appreciation since June, with some analysts expecting further gains. However, Commerzbank's Charlie Lay notes that the pace of future hikes may slow down due to the cumulative 50bp tightening since July.

The BoK's decision and continued tightening bias are seen as supportive for the KRW, but the currency is unlikely to see significant appreciation in the near term. This is because KRW has already gained around 12% against USD since June, making further gains more gradual.

Lay expects a near-term pause in interest rate hikes and sees scope for another hike to 3.25% if growth and core inflation remain firm. The USD/KRW exchange rate is likely to consolidate between 1,360-1,400 in the near term, according to Commerzbank.