Citigroup: The Bank of Korea will prioritize stabilizing the market rather than raising interest rates.

Citibank economists say that in response to high oil prices and the depreciation of the Korean won, the Bank of Korea may choose to stabilize the bond and foreign exchange markets in cooperation with the financial sector, rather than raising interest rates. Citibank economist Jin-Wook Kim wrote in a report that, if necessary, the South Korean Foreign Exchange Department may take decisive measures to stabilize the exchange rate, as they did at the end of December. "We believe that, if necessary, lowering fuel taxes could suppress the transmission of exchange rates and oil prices to domestic inflation." If the 3-year South Korean government bond yield continues to exceed 3.2%, the Bank of Korea may purchase government bonds. The Bank of Korea will provide liquidity support through open market operations to manage liquidity in the overnight repurchase market.