KB Securities said on the 23rd that consecutive rate hikes in August are unlikely despite Q2 GDP exceeding forecasts, as growth momentum slows. Researcher Lim Jae-kyun noted that if the GDP-GDI gap peaked in Q2, July inflation will likely remain subdued. Q2 real GDP rose 0.6% QoQ and 3.7% YoY, while GDI increased 3.5% and 15.6% respectively, according to the Bank of Korea. The GDI-GDP gap on a YoY basis narrowed to 11.9 percentage points in Q2 from 9.4 percentage points in Q1. Lim explained that while semiconductor price increases drove GDI growth, the pace of price gains is now decelerating, reducing demand-side inflation pressures previously flagged by BOK Governor Shin Hyeon-song in July.
KB Securities Cites Q2 GDP-GDI Gap Peak as Rate Hike Constraint
Lim stated in the report that the GDI-GDP gap likely confirmed a peak in the second quarter. He pointed out that on a quarter-on-quarter basis, the gap between GDI and GDP already narrowed in Q2 compared to Q1. The researcher attributed this to semiconductor price increases driving GDI growth, but noted that the pace of semiconductor price gains is slowing.
Q2 Economic Data Shows GDP-GDI Gap Narrowing from Q1
According to the Bank of Korea, South Korea's second-quarter real GDP recorded 0.6% quarter-on-quarter growth and 3.7% year-on-year growth. GDI for the same period showed 3.5% quarter-on-quarter and 15.6% year-on-year increases. The gap between GDI and GDP on a year-on-year basis reached 11.9 percentage points in Q2, down from 9.4 percentage points in Q1.
BOK Governor Highlighted Record Q1 GDI-GDP Gap in July Meeting
Lim noted that BOK Governor Shin Hyeon-song mentioned during the July monetary policy meeting that Q1 GDI and GDP recorded their largest-ever gap, expressing concern about demand-side inflation pressures. The researcher identified this as a factor that elevates demand-side inflation pressure. He added that markets may increase expectations for consecutive rate hikes in August following the Q2 GDI-GDP gap data.
July CPI and Exchange Rate Factors Limit August Rate Pressure
Lim assessed that July consumer price inflation, scheduled for release on August 4, will be difficult to record a high growth rate considering energy price declines and seasonality. He added that with the won-dollar exchange rate falling below 1,500 won due to SK Hynix's ADR listing fund conversion, the exchange rate conditions also make it difficult to heighten consecutive rate hike possibilities ahead of the August monetary policy meeting.
FAQ
What did KB Securities say about August interest rate policy on the 23rd?
KB Securities assessed that the likelihood of consecutive interest rate hikes in August is low despite Q2 GDP growth exceeding expectations, as growth momentum slows and the GDP-GDI gap appears to have peaked in the second quarter.
Why does KB Securities expect the GDP-GDI gap peaked in Q2?
Researcher Lim Jae-kyun explained that while semiconductor price increases drove GDI growth, the pace of semiconductor price gains is now slowing, and the gap already narrowed on a quarter-on-quarter basis in Q2 compared to Q1.
What factors does KB Securities cite for low July inflation expectations?
KB Securities noted that July CPI, due for release on August 4, will likely remain subdued due to energy price declines and seasonal factors, reducing pressure for consecutive rate hikes in August.
