We expect Korea’s central bank to lift its policy rate by 25bp to 2.75% on Thursday. This is in contrast to the consensus view which forecasts no change. The worst of the slowdown looks to have come through and GDP growth will probably pick up during the course of this year. Accordingly, and rightly, policymakers have shifted their focus on tacking rising inflation pressures. The upshot is that we expect a prolonged monetary tightening in 2011, with the policy rate reaching 3.5% by year-end.
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