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Analysts at Nomura note that in its quarterly financial conditions report to the Monetary Policy Committee (MPC), the Bank of Korea (BOK) staff highlights concerns over a still-high household debt-to-income ratio and excessive financial exposure to the property sector.

Key Quotes

“This supports our view that the MPC members have become more concerned about financial imbalances associated with the housing market. We continue to assign 30%, 60% and 10% probabilities to a 25bp rate hike to 1.75% in October, November and January or thereafter, respectively. We also continue to pencil in one final hike to a terminal rate of 2.00% in August 2019.”

“After the latest sell-off the market is essentially pricing in a full 25bp hike over next six months, which is broadly consistent with our base case. Today’s quarterly financial conditions report reiterates MPC member’s concerns over household debt, which means the market should continue to price in a high probability of a rate hike before year-end.”