Citi sees two rate hike scenarios for South Korea’s BoK

Citi has outlined two scenarios for the Bank of Korea, under which the central bank would raise its policy rate, according to the headline. The transmission mechanism runs primarily through the rate differential between Korean and US policy rates, since a BoK tightening would narrow a gap that currently influences won-denominated capital flows and carry-trade positioning. Korean government bonds and the won are the most directly exposed markets, as shorter-dated KTB yields tend to reprice first on hike expectations, while the won's sensitivity depends on whether tightening is seen as a response to domestic inflation or to currency weakness. Traders should watch Korea's next consumer price index release and the BoK's upcoming policy meeting minutes, which will indicate whether officials are signaling the inflation or exchange-rate rationale that Citi's scenarios hinge on.

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