Global Investment Banks Increasing South Korea's Rate Hike Frequency... "Up to 2.25% Next Year"

[Asia Economy Reporter Seo So-jeong] Global investment banks (IBs) have predicted that the pace of interest rate hikes by the Bank of Korea (BOK) could be faster than expected due to the Federal Reserve's (Fed) hawkish policy shift.

Goldman Sachs recently forecasted in its report titled "Update on South Korea's Monetary Policy Normalization Roadmap: Two Rate Hikes Despite Hawkish Fed" that the BOK will raise its benchmark interest rate twice more this year. If the rate is increased by 25 basis points (bp) twice (1bp = 0.01 percentage points), the benchmark rate will reach 1.75% in the second half of the year. Initially, Goldman Sachs expected one rate hike in the third quarter but has now revised the number to two.

Economist Kwon Gu-hoon analyzed, "The recent spread of COVID-19 will have less impact on economic activities than before," adding, "The inflation forecast for this year is 3.0%, and the inflation rate in the fourth quarter is expected to be 2.5%, showing a significant decline compared to 3.6% last year."

JP Morgan also expects the BOK to raise rates twice this year and anticipates that the pace of hikes could be faster than expected. In particular, they foresee an additional rate hike in April and the possibility of another increase this month before Governor Lee Ju-yeol's term ends. They also projected that the benchmark rate will rise to 2.25% by the end of next year.

Initially, JP Morgan had forecasted only one rate hike this year and one next year, totaling two hikes, but now expects a total of four hikes: two this year and two next year.

Park Seok-gil, Head of JP Morgan's Financial Market Operations Department, said, "The minutes of the BOK meetings indicate that rate hikes will be more aggressive and preemptive than previously expected," adding, "Rates will be increased by 25bp in April and again in the third quarter this year."

This content was produced with the assistance of AI translation services.