79% of bond market experts expect the benchmark rate to be kept unchanged at this month's Monetary Policy Board meeting

[Financial News] Expectations for another rate hike by the Bank of Korea (BOK) in the bond market have retreated sharply in just one month. Last month, two out of three market experts expected a hike in the benchmark rate, but this month that figure has fallen to one in five. In other words, about 80% of bond market experts now expect a freeze.
According to the September Bond Market Indicators released by the Korea Financial Investment Association on the 25th, a survey of 100 people involved in bond holdings and management from the 13th to the 19th found that 79% expected the benchmark rate to be left unchanged at this month's Monetary Policy Board meeting.
Only 20% expected a rate hike, while just 1% forecast a cut.
Market expectations shifted dramatically in just one month. In the July survey, 66% of respondents expected a rate hike, but in this survey that share plunged to 20%, down 46 percentage points. The change appears to reflect a growing view that, with market rates already having risen significantly and the won-dollar exchange rate falling, there is less need for the BOK to rush into another hike.
Upward revisions to growth forecasts, inflation pressure, and rising household debt are still seen as factors supporting a rate hike. On the other hand, recent declines in the exchange rate and higher market interest rates are being cited as reasons that reduce the need for further tightening by the BOK.
The Korea Financial Investment Association explained, "As factors favoring a hike, such as higher growth forecasts, inflation pressure and rising household debt, coexist with factors favoring a freeze, such as a weaker exchange rate and higher market rates, the share of respondents expecting the benchmark rate to be held steady increased from the previous survey."
Sentiment across the bond market also improved slightly. The Bond Market Sentiment Index (BMSI) rose 3.3 points from the previous month to 89.5. A BMSI reading above 100 indicates favorable sentiment in the bond market, while a reading below 100 means sentiment is subdued.
Views expecting further increases in market interest rates also declined sharply. The rate outlook BMSI stood at 99.0, up 15 points from 84.0 in the previous month.
The share of respondents expecting rates to rise fell 14 percentage points from the previous month to 16%, while the share expecting rates to remain unchanged rose 13 percentage points to 69%. The shift appears to reflect a wait-and-see mood ahead of the Jackson Hole Economic Policy Symposium later this month and the September meeting of the Federal Open Market Committee (FOMC), as investors look for clues on the global monetary policy path.
Still, concerns about inflation remain. The inflation BMSI fell 2 points from 99.0 last month to 97.0. Although consumer price inflation slowed to the 2% range last month, core inflation continued to rise, leaving uncertainty over the future inflation path, analysts said.
The exchange rate outlook also changed markedly. The exchange rate BMSI dropped 30 points from 129.0 last month to 99.0. The share of respondents expecting the won to strengthen fell 30 percentage points from the previous month to just 13%, while the share expecting it to remain unchanged rose 30 percentage points to 73%.
Concerns over higher import costs due to geopolitical risks in the Middle East, along with uncertainty surrounding U.S.-Korea trade negotiations, appear to have led to a view that the won-dollar exchange rate will likely stay within a narrow range for the time being rather than move in a clear direction.


[email protected] Kim Hyun-jung Reporter