Since Governor Shin Hyun-song took office at the Bank of Korea, the first meeting of the the Bank of Korea's monetary policy committee (Monetary Policy Board) will be held on the 28th. Experts said the Bank of Korea (BOK) is expected to hold the rate at 2.5% at this meeting and signal its intention to raise rates within the year through the monetary policy stance.
The idea is that a rate hike will be needed to stabilize prices as consumer inflation has risen due to the aftermath of the Middle East war. With economic growth strong this year, some said the burden of raising rates is lighter.
◇ "Prices surge on Middle East war fallout... won-dollar exchange rate also rises"
All 10 domestic securities macro and bond experts told ChosunBiz that the Bank of Korea (BOK) will hold the rate at 2.5% at the May Monetary Policy Board meeting. The Bank of Korea has kept the rate at 2.5% for seven consecutive meetings since July last year.
However, all the experts viewed this Monetary Policy Board meeting as a starting gun signaling a possible rate hike ahead. Seven experts expected a "minority opinion" in favor of a hike at this meeting. The remaining three forecast a unanimous hold but said the statement on the monetary policy stance released after the decision would include language hinting at a rate hike.
Experts judged this way because prices are rising. The consumer price inflation rate in April was 2.6%, marking the largest increase in 1 year and 9 months since July 2024 (2.6%). The producer price index in April also rose 2.5% from the previous month, the highest since February 1998 (2.5%), when there was a foreign exchange crisis. Producer prices are reflected in consumer prices with a lag.
The won's exchange rate against the U.S. dollar (won-dollar rate) recently topping 1,500 won is also adding momentum to a turn toward rate hikes. During the confirmation hearing, Governor Shin cited the Korea-U.S. interest rate gap as the reason for the won-dollar rate's rise. Korea's policy rate is currently 1.25 percentage points lower than the U.S. Federal Reserve's policy rate. When U.S. rates are higher, demand for dollars increases, pushing up the won-dollar rate (a fall in the won's value). That is why some expect a rate hike would also help stabilize the exchange rate.
◇ Nine experts say "expect two rate hikes this year" will the 3% rate era return
Nine out of 10 experts expected the Bank of Korea (BOK) to raise the rate twice this year by 0.25 percentage points each. In that case, the base rate would be 3%. A return to 3% would come about a year after January last year. The prevailing view was that the first hike would come at the July Monetary Policy Board meeting, with one more in the fourth quarter.
Two hikes within the year are feasible because strong semiconductor exports are driving high economic growth. The view is that a hike would not significantly damage growth. Real gross domestic product (GDP) in the first quarter grew 1.7% from the previous quarter, the highest since the third quarter of 2020 (2.2%).
Kang Seung-won, a researcher at NH Investment & Securities, said, "Growth is solid thanks to semiconductors, while prices are rising due to international oil prices," and added, "We will likely raise rates while the economy can withstand it and then watch next year." Kim Sung-soo, a researcher at Hanwha Investment & Securities, said, "Economic growth is above the potential growth rate, so it is not an obstacle to a rate hike," adding, "We can focus solely on inflation."