BNP Paribas: Bank of Korea to Raise Rates in July and Reach 3% in October

[Financial News]  French financial institution BNP Paribas said it expects the Bank of Korea to raise its benchmark interest rate by 25 basis points, or 0.25 percentage point, at the Monetary Policy Board meeting on the 16th. As market discussions on the rate path shift from the timing of cuts to the degree of additional tightening, BNP Paribas noted that this would be the first rate hike since January 2023.
Senior economist Yoon Ji-ho of BNP Paribas said in a report on the 9th, "The Bank of Korea is likely to raise the benchmark rate from 2.50% to 2.75% at the July Monetary Policy Board meeting, and the decision is expected to be unanimous."
It said no revised economic outlook or new forward guidance is likely to be presented at the meeting. However, it assessed that the Bank of Korea will treat recent changes in the macroeconomic environment as a key factor in future monetary policy decisions.
BNP Paribas said the central bank is likely to closely monitor the fact that inflationary pressure is gradually spreading as the recovery continues, while financial stability risks and market volatility are also rising.
In particular, BNP Paribas gave greater weight to the possibility that the July hike will not be a one-off measure. It expects the Bank of Korea to signal that it will maintain its current tightening stance while keeping the door open to further increases.
Economist Yoon said, "The Bank of Korea is likely to raise the benchmark rate once more at its October meeting, bringing it to 3.00% by year-end and then keeping it unchanged for a considerable period."
He added, "If the economy and inflation remain stronger than expected, it is difficult to rule out the possibility of additional rate hikes through 2027," and noted that "downside risks from further tightening remain over the medium to long term."
Meanwhile, the investment banking industry is paying attention to the fact that BNP Paribas not only sees a July rate hike as a possibility, but also presents a base case of a prolonged hold at 3.00% while leaving room for another hike in 2027. The view among foreign investment banks on the terminal rate appears to be turning more hawkish than before.


[email protected] Kim Kyung-a Reporter