the Bank of Korea's monetary policy committee will meet on the 16th to set the base rate. Earlier, a ChosunBiz survey of domestic securities firms' macro and bond experts found that all 10 respondents expected the Monetary Policy Board to raise the base rate by 0.25 percentage point at this meeting, from an annual 2.5% to 2.75%. If realized, it would be the first rate hike in 3 years and 6 months since January 2023.
At a press conference after the Monetary Policy Board meeting in May, Governor Shin Hyun-song said it was judged necessary to raise the base rate at an appropriate time. He then said in the Bank of Korea (BOK) foundation anniversary address on the 12th of last month that it was necessary to raise rates without delay with a focus on price stability.
The Monetary Policy Board is considering a rate hike this time to lower consumer prices, which have risen sharply since the Middle East war. Consumer price inflation was 3.1% in May and 3.2% in June, exceeding the Bank of Korea (BOK)'s medium-term price stability target of 2%. In a report reviewing the operation of the price stability target released on the 17th of last month, the Bank of Korea (BOK) expected consumer price inflation to be around 3% in the second half of this year.
With recent macroeconomic indicators looking favorable, some analysts say corporations will not face a heavy burden even if the Bank of Korea (BOK) raises rates. Helped by strong exports such as semiconductors, real gross domestic product (GDP) in the first quarter grew 1.7% from the previous quarter. It was the largest increase in 5 years and 6 months since the third quarter of 2020 (2.2%). In an economic growth strategy for the second half released on the 14th, the Ministry of Economy and Finance raised its forecast for this year's real GDP growth to 3% from 2%.
There is also talk that the Bank of Korea (BOK) could raise rates one or two more times this year. In the dot plot released in May reflecting Monetary Policy Board members' views for six months ahead, 19 of the 21 dots were above an annual 2.5%. In the ChosunBiz survey, all 10 experts expected the year-end base rate to reach 3%. They said rates could be raised by 0.25 percentage point each in July and October.
If rates are actually raised, people with dwelling loans are expected to face higher interest burdens. According to analysis the Bank of Korea (BOK) submitted to Lee Jong-uk of the People Power Party, if the mortgage loan lending rate rises by 0.25 percentage point, total borrowers' annual interest burden would increase by 1.8 trillion won. The per-capita interest burden would rise by 296,000 won, from an average of 5,843,000 won to 6,139,000 won.