"Rates to Rise in July and October" ... Tightening Clock Ticks Faster [Signs of Rate Hikes Under Shin Hyun-song]

Market experts had no doubt that the benchmark rate would be raised in July. Shin Hyun-song, governor of the Bank of Korea, has sent several clear tightening signals, and financial conditions also support the move. Most respondents pointed to October as the next hike.
A survey by Financial News of 10 market experts on the 12th found that all of them expected the Monetary Policy Board to raise the benchmark rate by 25 basis points on the 16th. One basis point equals 0.01 percentage point.
Nine of them predicted a unanimous decision with no dissenting votes. At the Monetary Policy Board meeting in May, only Jang Yong-seong and Ryoo Sangdai voted for a hike, but this time the other five members, including Governor Shin, are also expected to change their stance.
The market had already treated a July rate hike as a foregone conclusion. That was because Governor Shin had repeatedly hinted at further increases in the benchmark rate. He began by saying at a May press briefing after the Monetary Policy Board meeting that "the path is relatively clear, whether you look at inflation, growth, exchange rates or real estate." He then reinforced that message at the BOK International Conference in June, at the central bank's founding anniversary ceremony, and in a National Assembly briefing on the 9th. Experts also agreed that rates would be raised twice this year, including this month. Eight of the 10 respondents identified October as the next move, while one predicted another hike at next month's meeting.
Macroeconomic and financial conditions are also creating an environment for tightening. International oil prices have stabilized somewhat as the Middle East war has eased, but inflation expectations remain elevated. Consumer price inflation rose as high as 3.2% in June. There is also a need to curb upward pressure on housing prices and the won-dollar exchange rate.
Kong Dong-rak, an analyst at Daishin Securities, said, "There is a need to contain the rise in inflation expectations caused by higher oil prices after the war," adding that "surrounding conditions such as growth, financial stability and the exchange rate are also pointing to a rate increase."
The economy is easing the burden of tightening by improving its growth outlook. Strong semiconductor performance is fueling expectations that the 2.6% growth forecast released in May will be revised upward. Some even expect the figure to move into the 3% range.
In particular, inflation is widely expected to peak in August, which is also supporting calls for a preemptive hike in July. In August, the Monetary Policy Board meeting will be held late in the month on the 27th, and there is no meeting in September, making it difficult to respond if prices surge before then.
Experts said the bond market has already priced in part of the Monetary Policy Board's stance, but still has room to rise. The average year-end peak forecasts among the 10 respondents were 3.978% for the 3-year Korean Treasury bond and 4.406% for the South Korean 10-year Treasury bond. Compared with the levels on the 9th, 3.778% and 4.250%, respectively, there is still room of 20 basis points and 15.6 basis points.
taeil0808@fnnews.com Kim Tae-il Reporter