Eyes on the Bank of Korea Monetary Policy Committee on the 24th... Heightened Attention to Base Rate Hike

[Asia Economy Reporter Seo So-jeong] The market's attention is focused on whether the Bank of Korea's Monetary Policy Committee will raise the base interest rate from the current 1.25% at the monetary policy meeting scheduled for the 24th.

Having raised the base rate by 0.25 percentage points in August and November last year and again in January this year, there is a strong possibility that the committee will take a breather this month. However, the possibility of a surprise hike cannot be completely ruled out as a preemptive response to the accelerating tightening in the U.S. and to curb soaring inflation.

In particular, inflationary pressures are increasing the necessity for a base rate hike. The consumer price inflation rate has remained in the 3% range for four consecutive months, and the Bank of Korea is expected to significantly raise its consumer price inflation forecast for this year from the previous 2% to the 3% range. The Bank of Korea will also announce a revised economic outlook at the Monetary Policy Committee meeting on the 24th. The last time the Bank of Korea projected a consumer price inflation rate in the 3% range for the current year was in April 2012, at 3.2% (2012 inflation forecast). If a 3% range inflation forecast is announced this time, it will be the first in nearly 10 years.

However, experts believe that since the Bank of Korea raised the base rate three times in August and November last year and January this year, it is likely to need time to observe the ripple effects. A sharp increase in the base rate leads to higher loan interest rates, increasing the interest burden on ordinary households and self-employed individuals, and there are concerns that it could negatively affect the fragile economic recovery amid the Omicron pandemic.

Professor Kim So-young of Seoul National University’s Department of Economics predicted, "Since the base rate has been raised three times since last year, it is likely that the committee will take a wait-and-see approach in February." Professor Kang Sung-jin of Korea University’s Department of Economics said, "With the presidential election issue next month and the recent surge in Omicron cases, the incomplete recovery from COVID-19 will act as a burden against raising interest rates."

Robert Schwarzman, Head of Asia Economy and Global Market Analysis at Nomura Group, analyzed that the Korean economy will grow by a lower-than-expected 2.1% this year due to slowing export growth and weak domestic demand, making it difficult for the Bank of Korea to raise the base interest rate further.

Researcher Lee Mi-sun of Hana Financial Investment predicted, "At the February Monetary Policy Committee meeting, the base rate will be held steady at 1.25%, with one or two minority opinions calling for a hike." However, she added, "Considering the recently heightened domestic and international inflation, the accelerated pace of U.S. rate hikes, and already elevated market bond yields, the possibility of raising the base rate to 1.50% at the February meeting cannot be ruled out."

Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "Whether the Monetary Policy Committee raises the base rate on the 24th or not, any decision would not be surprising," adding, "Personally, I think it is time to raise the base rate due to strong inflationary pressures."

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