Market expectations that the Bank of Korea's policy rate freeze would persist are being overturned as major variables such as the recent geopolitical crisis in the Middle East come into play.
According to the financial investment industry on the 1st, major brokerages have recently issued research reports forecasting that the Bank of Korea (BOK) will attempt to raise the benchmark rate at least once this year. Some analyses even suggest the central bank could raise rates by 0.25 percentage points on two separate occasions.
Just two months ago, brokerages had kept alive the possibility of not only a prolonged freeze but also a rate cut. Behind this abrupt shift are the prolonged Iran war and economic growth that has exceeded expectations. With the Middle East situation continuing for more than two months, international oil prices have surpassed $100 per barrel, intensifying inflationary pressure.
Adding to this, the preliminary first-quarter real gross domestic product (GDP) growth rate (quarter-on-quarter) announced by the BOK on April 23 came in at 1.7%, acting as a factor fueling price increases. This far exceeds the BOK's initial first-quarter projection of 0.9%.
The views of researchers at each brokerage have also turned uniformly hawkish. Cho Yu-na, a researcher at Eugene Investment & Securities, diagnosed that a rate cut would be difficult unless a severe economic downturn occurs, and that it is reasonable to leave open the possibility of a hike considering trends in international oil prices. Kang Seung-won, a researcher at NH Investment & Securities, also said the situation has changed rapidly due to the outbreak of war, and predicted that one upward adjustment would be inevitable unless the situation calms down before the May Monetary Policy Board meeting.
Ahn Ye-ha, a researcher at Kiwoom Securities, predicted at least one upward adjustment in the second half of the year, while assessing that as many as two hikes should be kept on the table depending on the flow of macroeconomic indicators. Cho Yong-gu, a researcher at Shinyoung Securities, analyzed that after an initial hike in August, an additional move could be made in the first half of next year.
Some have even drastically revised their existing views to two consecutive hikes within the year. Choi Ji-wook, a researcher at Korea Investment & Securities, forecast rate hikes in August and November respectively, explaining that since actual GDP exceeds potential GDP and financial conditions remain accommodative, two hikes would not cause a contraction in the real economy.
On the other hand, Chung Sung-tae, a researcher at Samsung Securities, revised his forecast based on a scenario in which a ceasefire is reached during the second quarter, maintaining the current rate level this year but expecting two rate hikes in 2027 in consideration of improved growth prospects. "Taking into account the improvement in the growth outlook, we are revising the BOK's benchmark rate forecast from a prolonged freeze to a freeze within the year and two hikes in 2027," Chung said. "This is based on a second-quarter ceasefire scenario."
