Rate Freeze Seen Likely at Hyun-Song Shin's First Monetary Policy Board Meeting; Experts Say First Hike Could Come as Early as July [Hyun-Song Shin's First Monetary Policy Board Meeting]

Market experts have identified July as the likely timing of this year's first rate hike. The Monetary Policy Board meeting on the 28th, the first to be chaired by Bank of Korea Governor Hyun-Song Shin, is expected to keep rates unchanged for now. However, analysts say the central bank will likely deliver a tightening message and then act at the next meeting.
On the 25th, Financial News asked six experts from the market and academia when they expected the first benchmark rate hike of the year. Five chose July. Three said July, while two pointed to July-August or the third quarter, noting that there is no Monetary Policy Board meeting in September. Only one respondent said there would be no rate hike this year.
If the benchmark rate is raised in July, it would mark a policy pivot 14 months after it fell to 2.50% in May last year. Analysts say such a move is unavoidable as inflation worries intensify over the Middle East crisis. To secure its main goal of price stability, the BOK will have to block the transmission of higher oil prices into headline inflation and, eventually, core inflation in a timely manner.
Park Hyung-jung, an economist at Woori Bank, said, "The shock from higher transportation and energy costs, already amplified by Middle East risks, will spread across the economy with a time lag." He added, "We should leave open the possibility that the tightening stance will continue into the first half of next year."
Growth driven by semiconductors also gives the Monetary Policy Board a reason to prepare for tightening. It eases concerns that the economy could cool too sharply. In the economic outlook to be released after this month's meeting, the forecast for this year's growth rate is expected to come in well above 2.0%.
Still, experts expect this meeting to end with rates unchanged. It will be Hyun-Song Shin's first meeting, and the impact on households carrying debt must also be considered. Professor Hyun Jeong-hwan of Dongguk University's Department of International Trade said, "This is still an adjustment period after the new governor took office, and inflation is not rising fast enough to justify an immediate rate hike." He added, "There is also the risk of the economy slowing down."
Cho Yong Gu, a researcher at Shinyoung Securities Co., Ltd., said, "Given the need to review a rate hike from the perspective of growth and inflation, both of which will likely be revised sharply higher, the board is more likely to signal a hike while watching developments in the Middle East and assessing the impact, as well as considering communication with the market."
Unlike the unanimous hold at the Monetary Policy Board meeting in April, experts expect a minority opinion in favor of a hike. Five of the six respondents, excluding one who expected a unanimous hold, predicted a dissenting vote from one to three members. Cho said, "If we take into account concerns over prolonged high oil prices, upward revisions to growth and inflation forecasts, the weak won, and overheating in the Seoul metropolitan area property market, a minority opinion calling for a hike is likely." He added, "Inflation could enter the 3% range as early as this month, with a peak expected in August, so a July response may be appropriate."
taeil0808@fnnews.com Kim Tae-il, Hong Ye-ji Reporter