The Bank of Korea (BOK) will set the base rate at the Bank of Korea's monetary policy committee on the 10th. The Bank of Korea (BOK) held the base rate at 2.5% annually for six straight meetings since July last year. This Monetary Policy Board meeting is the last chaired by Rhee Chang-yong. His successor nominee, Shin Hyun-song, takes office on the 21st.
All 11 domestic securities firms' macro and bond experts told ChosunBiz they expect the Bank of Korea (BOK) to hold the base rate at this Monetary Policy Board meeting. On the future rate path, three projected one "rate hike" in the second half.
◇ "Concerns over inflation have grown due to the Middle East situation"
The biggest reason experts expect a hold in April is that concerns over inflation have grown because of the Middle East situation. Since last month, global oil prices and the won-dollar exchange rate have surged. West Texas Intermediate (WTI) rose from $65 per Barrel on Feb. 26, just before the war, to $111 on the 2nd of this month. The won-dollar rate fell to 1,419 won at the end of Feb. but hit a record high of 1,530.1 won on the 31st of last month, the highest since the global financial crisis. It closed at 1,505.2 won on the 3rd.
Driven by high oil prices and a weak won, March consumer price inflation rose to 2.2%, up from 2% in January–February. Last month, petroleum product prices climbed 9.9% from a year earlier. The rate of increase was the highest in three years and five months. The Bank of Korea (BOK) said at a price situation review meeting on the 2nd that "the pace of consumer price increases will expand after April."
In this situation, if the Bank of Korea (BOK) lowers rates, prices could rise further. The wider rate gap with the United States could send foreign funds from Korea to the U.S., where rates are relatively higher (3.5%–3.75% annually). In that case, the won would weaken and import prices would rise.
A rate hike to slow inflation is also difficult for now. That is because most sectors except semiconductors are still sluggish. According to the Bank of Korea (BOK), Korea's gross domestic product (GDP) growth forecast for this year is 2%, but excluding the information technology (IT) sector it is only 1.3%. Last month, the Organization for Economic Cooperation and Development (OECD) cut its forecast for Korea's growth this year to 1.7% from 2.1%. The size of the downgrade was the second largest among the Group of 20 after the United Kingdom (0.5 percentage point).
Regarding future monetary policy, governor nominee Shin Hyun-song said on the 31st of last month, on the way to his confirmation hearing office, "Given the uncertainty over how the Middle East situation will unfold and how long it will last, we need to watch for a while," adding, "It is desirable to respond flexibly depending on the situation."
◇ Eight experts say "hold through year-end" vs. three say "rate hike in the second half"
Eight of the 11 experts expected the Bank of Korea (BOK) not only to hold rates at this Monetary Policy Board meeting but to keep them on hold through year-end. Park Sang-hyun, a researcher at iM Securities, said, "Although high oil prices are raising concerns about inflation, the risk of an economic slowdown stemming from this is also growing." An Ye-ha, a researcher at Kiwoom Securities, also said, "Given weak domestic demand, a rate hike will be difficult."
By contrast, three experts said that if the Middle East situation is prolonged, a one-time rate hike in the second half is possible. Cho Yong-gu, a researcher at Shinyoung Securities, said, "The Bank of Korea (BOK) is likely to raise the base rate once in the third quarter after confirming the trajectory of the Middle East war, advanced economies' monetary policy, and inflationary pressures in the second quarter."