Key Takeaways
- • All six economists surveyed by Yonhap News Agency expect the Bank of Korea to hold its benchmark rate steady at 3 percent at its Thursday policy meeting, following back-to-back hikes in July and August.
- • The same six economists unanimously expect the BOK to raise rates again in November, as inflation remains well above the 2 percent target amid strong semiconductor-driven growth and high oil prices.
- • Core inflation fell to 2.8 percent in September from 3.4 percent in August, and the won's appreciation to around 1,330 per U.S. dollar has offset higher oil prices, according to JPMorgan Korea's Park Seok-gil.
- • BOK Governor Shin Hyun-song signaled a possible pause at a recent parliamentary audit but reaffirmed a hawkish stance, saying inflation will stay above target for a considerable period.
Summary
Local economists expect the Bank of Korea (BOK) to keep its benchmark interest rate unchanged at 3 percent when its Monetary Policy Board meets on Thursday, according to a survey of six economists conducted by Yonhap News Agency and published Sunday. The central bank raised rates twice in a row, in July and August, and the experts said it needs time to assess market conditions before any further move.
Joo Won, a senior researcher at Hyundai Research Institute, warned that three consecutive hikes could place a significant burden on households and domestic companies, adding that a pause is highly likely so the central bank can gauge the effects of earlier increases. Park Seok-gil, an economist at JPMorgan Korea, said the BOK will closely examine economic indicators given how conditions have shifted over the past two months. He pointed to core inflation, which excludes volatile food and energy prices, falling to 2.8 percent in September from 3.4 percent the previous month. The won's appreciation, with the currency hovering around 1,330 against the U.S. dollar, has also helped offset higher oil prices.
Ahn Jae-kyun, an analyst at Korea Investment & Securities Co., said that although growth momentum is strong and there is room to raise this year's growth forecast, core inflation has stabilized to some extent and the exchange rate is steady, leaving insufficient justification for an additional hike now.
The outlook for November is different. All six economists expect another increase, as consumer price inflation is forecast to stay well above the 2 percent target amid robust semiconductor exports. Ahn Ye-ha, a senior researcher at Kiwoom Securities Co., said that semiconductor-led growth and persistent inflationary pressure from high oil prices suggest the rate-hike trend is likely to continue.
BOK Governor Shin Hyun-song signaled a possible pause during a parliamentary audit last week, noting the central bank always assesses how much time economic agents need to adapt. He also reaffirmed the hawkish stance, saying inflation is expected to remain above target for a considerable period and that the BOK will set the timing and pace of additional hikes while monitoring inflation, economic trends and financial stability.
Joo Won, a senior researcher at Hyundai Research Institute, warned that three consecutive hikes could place a significant burden on households and domestic companies, adding that a pause is highly likely so the central bank can gauge the effects of earlier increases. Park Seok-gil, an economist at JPMorgan Korea, said the BOK will closely examine economic indicators given how conditions have shifted over the past two months. He pointed to core inflation, which excludes volatile food and energy prices, falling to 2.8 percent in September from 3.4 percent the previous month. The won's appreciation, with the currency hovering around 1,330 against the U.S. dollar, has also helped offset higher oil prices.
Ahn Jae-kyun, an analyst at Korea Investment & Securities Co., said that although growth momentum is strong and there is room to raise this year's growth forecast, core inflation has stabilized to some extent and the exchange rate is steady, leaving insufficient justification for an additional hike now.
The outlook for November is different. All six economists expect another increase, as consumer price inflation is forecast to stay well above the 2 percent target amid robust semiconductor exports. Ahn Ye-ha, a senior researcher at Kiwoom Securities Co., said that semiconductor-led growth and persistent inflationary pressure from high oil prices suggest the rate-hike trend is likely to continue.
BOK Governor Shin Hyun-song signaled a possible pause during a parliamentary audit last week, noting the central bank always assesses how much time economic agents need to adapt. He also reaffirmed the hawkish stance, saying inflation is expected to remain above target for a considerable period and that the BOK will set the timing and pace of additional hikes while monitoring inflation, economic trends and financial stability.
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