End of Korea's tightening cycle in sight

The Bank of Korea's decision to raise its policy rate by 25bp to 3.25% on Friday surprised the consensus which had expected no change but was in line with our view. We expect another hike in Q3 and see the base rate reaching 4.0% by mid-2012. However, the tightening cycle is likely to end in 2012 with the base rate peaking far below the 5.25% reached in 2008.

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