BoK Preview: Forecasts from seven major banks, monetary tightening set to continue

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Thursday, August 25 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of seven major banks. 

At the last meeting on July 13, the bank hiked rates by 50 basis points (bps) to 2.25%, as expected. Now, the BoK is expected to hike their rate by 25 bps to 2.50%. 

ANZ

“We expect the BoK to hike by 25 bps. Overall, we maintain that the BoK’s rate hiking cycle will end in 2022; we have pencilled in 25 bps hikes at each of its remaining three policy meetings (August, October and November) this year, bringing the policy rate to 3.0%.”

Standard Chartered

“We expect the BoK to hike the base rate by 25 bps to 2.50%. The central bank is likely to take a balanced approach to monetary policy as the base rate has reached the bottom of the range of neutral rate estimates and global recessionary concerns rise. Korea’s CPI inflation rose to 6.3% YoY in July, suggesting that inflationary pressure remains and that inflation is yet to peak. However, on MoM basis, CPI inflation eased to 0.5%. The BoK is likely to view this positively and therefore hike by 25 bps in August.” 

ING

“We expect the BoK to raise rates by 25 bps. On the same day, the BoK will release its latest economic outlook. The 2022 GDP outlook could be downgraded slightly to 2.6% from the current 2.7%, while the CPI inflation outlook should rise sharply to 5.3% from 4.5%.  Surveys for consumers and businesses are also likely to worsen as the recent nationwide floods will likely take a toll on sentiment.”

UOB

“On the assumption that inflation will peak in 2H22, we maintain our forecast for the BoK to revert to 25 bps hike for the remaining meetings this year in Aug, Oct and Nov to bring the benchmark base rate to 3.00% by year-end. With an expected moderation in inflation rate next year, the BoK is likely to stay on hold thereafter, or even begin to trim interest rate should growth risks mount.”

TDS

“Headline inflation climbed to 6.3% YoY in July from 6.0%, reaching a 24-year high and likely warrants another hike from the BoK. However, the Governor has signalled a preference for more ‘gradual’ 25 bps hikes instead of another outsized 50 bps hike last month. The Board still views the policy rate as accommodative and we think the BoK isn't done with its tightening cycle yet.”

BBH

“BoK is expected to hike rates 25 bps to 2.5%. The swaps market is pricing in 50 bps of tightening over the next six months that would see the policy rate peak near 2.75% but we see upside risks.”

Credit Suisse

“We now think that the BoK will slow down its hikes. We expect 25 bps hikes at each of the four upcoming meetings (25 August, 12 October, 24 November and next January) to be followed with a pause for the remainder of 2023.”