Forecasts from eight major banks, economists split between a hike or a hold

The Bank of Korea (BoK) is set to hike the base rate to 0.75% from 0.50% at its 26 August monetary policy meeting. Economists are split on the possibility of a 25bp rate increase. Here you can find the forecasts by the analysts and researchers of seven major banks regarding the upcoming BoK’s Interest Rate Decision.

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Standard Chartered

“We expect the BoK to hike the base rate to 0.75 (from 0.50). The market may be considering whether the BoK might wait until October to assess the severity of the Delta variant resurgence and its impact on the job market, especially in the services sector. However, we expect a BoK hike this month rather than in October, as a delay in hiking rates could undermine the market and public’s confidence in the government and central bank’s ability to control housing prices. Furthermore, BoK communications risk becoming less effective as a policy tool failing a hike at the upcoming meeting, as policymakers had signalled an earlier hike. We expect a dissenting vote for a hold, as there is a dovish member of the policy committee who has expressed that a rate hike during the pandemic is premature.”

ANZ

“We expect BoK to keep its policy rate on hold at 0.50%. Although the central bank had signalled that it is considering a rate hike as early as August, we think the heightened uncertainty surrounding an escalating domestic virus situation will keep it on the sidelines for now. We maintain our base case scenario for the first 25bp hike to come in October, provided that the domestic virus situation has improved by then.”

ING

“Concerns over the Delta variant and the impact on global growth are already being factored in by monetary authorities. We expect the Bank of Korea to possibly take cue from the RBNZ and leave rates unchanged too.”

TDS

“It will be a close call at this meeting. Increasing COVID-19 cases and mobility restrictions are likely to result in continued caution. That said, high frequency data are holding up well and inflation is still uncomfortably high and above the BoK’s target. We think BoK will wait to see how the COVID-19 picture develops over the next few weeks and maintain our view of an October hike.”

BBH

“The BoK is expected to keep rates steady at 0.50%. At the last meeting on July 15, the bank kept rates on hold but there was one dissent in favor of a hike. The worsening virus numbers and the partial lockdown of Seoul haven’t discouraged the BoK officials from their intention to hike this year, but it could push back the timeline and we think this week is too soon for a move. Even with the supportive fiscal backdrop, we doubt officials would risk a policy mistake by hiking rates until the infection curve improves.”

SocGen

“In South Korea, a tightening in policy is also in the balance, but the shake-out in the currency and local equity markets, and rising COVID-19 infections cases, could prompt the BoK to delay an impending 25bp rate hike. We think the BoK will bide its time in light of rising COVID-19 infections and instead will tighten 25bp to 0.75% in October. We think this will probably be followed by 100bp in 2022.”

Credit Suisse

“We still expect a 25 bps hike from the BoK on 26 August, given that South Korea’s economy is relatively insensitive to the government’s ‘soft lockdowns’ and given that the BoK’s MPC members are focused on macro-prudential risks and export growth. Although the RBNZ decision marginally pared back expectations for BoK tightening, the KRW curve still prices in a hike.”

DBS Bank

“We see a 40-50% chance for the BoK to raise the benchmark 7-day repo rate by 25bps to 0.75%. Our base case forecast is for the BoK to move in 4Q after the vaccination rate in South Korea rises more substantially to 70-80%. We believe that policymakers will adopt a gradual and calibrated approach toward interest rate normalisation. This takes into account the uncertainties on growth outlook in the next 6-18 months, including the slowdown risk in China, double-dip risk in some EMs due to the Delta variant, peaking of the global semiconductor cycle, and leadership transition/presidential election in South Korea in March 2022. Our longer-term forecast remains for the benchmark rate to rise to 1.00% by mid-2022 and to 1.25% by end-2022.”