Speculation is rife over the timing of the next interest rate hike by the Bank of Korea, with opinions divided between August and October. While there is general consensus on the need for one more increase this year, some institutions are leaning towards an earlier 'back-to-back' hike in August.
According to financial sources on July 20, Korea Investment & Securities has maintained its year-end base rate forecast at 3.00% but has moved the anticipated timing of the next hike from October to August. The firm expects the Bank of Korea to raise rates in both July and August before assessing the impact of these changes. If further upward pressure on growth and prices is confirmed, another hike could occur in the first quarter of next year; otherwise, the rate may remain at 3.00% for an extended period.
Moon Da-un, a researcher at Korea Investment & Securities, stated, "The Bank of Korea is likely to confirm improvements in income conditions through second-quarter GDP and GDI data before adjusting its economic outlook and implementing an additional rate hike in August. However, the rising prices of semiconductors are expected to moderate from the fourth quarter, and the recovery in private employment is slow, making it difficult for high growth rates to lead directly to more rate hikes."
JP Morgan also assesses a high likelihood of a rate increase in August. Park Seok-gil, an economist at JP Morgan, interpreted the governor's press conference as suggesting that the possibility of an August hike is slightly higher than that of a freeze. He noted, "If the second-quarter GDP and July consumer price index confirm the current trends, an August consecutive rate hike will be a strong option." Korea Citibank shares this view, predicting an August hike if the second-quarter GDP remains strong and demand-side inflation pressures persist.
Conversely, several analysts predict that the next hike will occur in October. NH Investment & Securities believes it will be challenging to confirm additional demand-side inflation pressures before the August monetary policy meeting. Kang Seung-won, a researcher at NH Investment & Securities, emphasized, "While data predictions are important for policy decisions, confirmation is even more critical," suggesting that the likelihood of a rate freeze at the August meeting is increasing amid minority opinions for a hike.
Hyundai Motor Securities also favors the October timeline for a potential rate increase over August. Choi Je-min, a researcher at Hyundai Motor Securities, remarked, "Monetary Policy Committee members are cautious about growth and inflation risks but do not seem to view the situation as urgent enough to warrant consecutive hikes." He interpreted the governor's metaphor of a 'tanker' as a call for a measured approach to the pace of rate increases.
Bank of Korea Governor Shin Hyun-sung likened monetary policy to a 'tanker' during a press conference on July 16, stating, "It does not move in a day or two; we will consider the time it takes for policies to impact the economy."
* This article has been translated by AI.
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