Expectations for a Bank of Korea rate hike surge as brokerage houses forecast 3% by year-end

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\r[Financial News] As geopolitical risks from the Middle East and stronger-than-expected growth momentum converge, expectations are rising that the Bank of Korea (BOK) will shift its monetary policy stance from easing to caution against tightening. Brokerage houses now expect the BOK to raise its benchmark rate at least once this year. The Monetary Policy Board meeting scheduled for the 28th is widely expected to keep rates unchanged, but analysts say the board's hawkish stance will likely become even stronger.
According to the financial investment industry on the 1st, major securities firms have recently raised their benchmark rate forecasts for the BOK in a series of reports. Market consensus, which had still left room for a rate cut this year as recently as February, has now retreated sharply.
Korea Investment & Securities raised its forecast for this year's economic growth rate by 0.7 percentage points, from 1.8% to 2.5%. It said South Korea's economy grew 1.7% quarter on quarter and 3.6% year on year in the first quarter, far exceeding market expectations, supported by strong private consumption and facility investment. In its report, Korea Investment & Securities projected that the benchmark rate would be raised twice this year and reach 3.00% by the end of the year.
A prolonged war between the United States and Iran is also reinforcing the case for a rate hike. Korea Investment & Securities estimated that higher energy prices alone could have a negative impact of about $25 billion on this year's trade balance. It said the overall trade surplus would likely remain intact, supported by strong IT exports, including semiconductors, but upward pressure on inflation would continue. The report added that after the war began, inflation expectations among experts and the general public rose by 0.5 percentage points and 0.3 percentage points, respectively.
Shinhan Securities said that even if the benchmark rate is kept unchanged at the May Monetary Policy Board meeting, the distribution of board members' views on the policy direction over the next six months is likely to tilt toward 'hike ≥ hold > cut.' In a related report, Shinhan Securities said, "The first-quarter GDP surprise has brought back into focus economic conditions that had been overshadowed by inflation concerns," adding, "The May Monetary Policy Board meeting will likely take on a more hawkish tone, and there will be no calls for a cut."
Market expectations for a rate hike are also being supported by Hyun Song Shin, Governor of the Bank of Korea, who said during his confirmation hearing that he would place more weight on inflation than on growth. Investors are watching closely to see whether he will signal more concretely at the Monetary Policy Board meeting on the 28th that an additional rate hike is possible.
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elikim@fnnews.com Kim Mi-hee Reporter