Will the Bank of Korea Pause Its Rate-Hike Streak? State Street Sees a Hold in October [Financial News Market Watch]

[Financial News]  After the Bank of Korea (BOK) raised its benchmark interest rate by 25 basis points, State Street Corporation said it expects the central bank’s rate-hike streak to pause in October. Still, the firm said the door remains open to further tightening, as the BOK sharply raised its growth outlook not only for this year but also for next year.
On the 27th, Choi Ji-wook, managing director at State Street Market, said of the rate decision, "The bank appears to have judged that economic growth supports additional tightening, and its economic outlook was somewhat more hawkish than expected."
The BOK raised its growth forecast for this year to 3.3% from 2.6% in May. It also lifted its 2027 growth outlook by 0.8 percentage point, to 2.9% from 2.1%. The forecast for core inflation next year was also raised to 2.5% from 2.3%.
State Street focused on the change in next year’s outlook. It said the revision reflects expectations that expansionary fiscal policy and a semiconductor upturn lasting longer than anticipated will boost investment and net exports.
At the same time, it said the pace of rate increases is likely to slow. At this meeting, Hwang Geon-il cast a dissenting vote against the hike, and the phrase "the need to continue the rate-hike stance" was removed from the statement issued in July. Based on that, State Street expects the BOK to keep the benchmark rate unchanged at its October meeting and to assess the impact of the cumulative 50-basis-point increase in July and August on inflation, growth and financial stability.
The key variables for another hike are inflation and real estate. If core inflation in September rises much more than expected, or if apartment prices in Seoul and household debt surge again, another increase in November could be possible. State Street’s September core inflation forecast is about 2.6%.
A stronger won and tighter won funding conditions in the foreign exchange market are also among the reasons it expects the BOK to take a breather in October.
Markets are also pricing in one more hike, with the terminal rate seen at around 3.25%.
Choi said, "If inflationary pressure comes in above the BOK’s assessment at the August meeting, another hike in November is possible." He added, "Otherwise, the next rate increase is likely to be pushed back to the first quarter of 2027."
A bond market official added, "The BOK raised rates, but it did not signal consecutive hikes." He said the higher growth forecast keeps the option of another hike on the table, but the market is giving more weight to a scenario in which the bank pauses in October.
[email protected] Kim Kyung-a Reporter