[Weekly Outlook] Will the Bank of Korea Take a 'Baby Step'... Also Eyeing OECD Economic Forecasts

The Bank of Korea to Decide Base Rate on the 24th... Focus on Sixth Consecutive Increase
Economic Growth Forecast Also Announced... Attention on Possible Downward Revision

Governor Lee Chang-yong Striking the Gavel
(Seoul=Yonhap News) Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the regular Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 12th of last month. 2022.10.12 [Photo by Joint Press Corps]
photo@yna.co.kr
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[Asia Economy Sejong=Reporter Lee Jun-hyung] The Bank of Korea will decide whether to raise the base interest rate on the 24th. Attention is also focused on the economic outlook to be announced next week (21st-25th) by the Organisation for Economic Co-operation and Development (OECD).

According to related ministries on the 20th, the Monetary Policy Board of the Bank of Korea will hold a meeting on the morning of the 24th to discuss the direction of monetary policy, including the base interest rate. Previously, the Bank of Korea raised the base interest rate five consecutive times from April to October this year. This is the first time in history that the Bank of Korea has raised the base interest rate five times in a row.

However, the prevailing view is that the Bank of Korea will raise the base interest rate again this time. This is because the consumer price inflation rate recorded 5.7% last month, returning to an upward trend after three months, and the gap with the US base interest rate has widened to 1 percentage point.

Regarding the magnitude of the base interest rate hike, both a baby step (0.25 percentage point increase) and a big step (0.5 percentage point increase) are possible. Considering that the Bank of Korea has recently paid attention to the tightening of the funding market and the possibility that the US may adjust the pace of its interest rate hikes, it is more likely to take a baby step. However, if the Bank of Korea focuses on narrowing the interest rate gap between Korea and the US and stabilizing prices, it may take a big step.

The Bank of Korea will also announce its economic growth rate and inflation rate forecasts for this year and next on the 24th. In August, the Bank of Korea projected economic growth rates of 2.6% for this year and 2.1% for next year. At that time, the inflation rate forecasts for this year and next were 5.2% and 3.7%, respectively.

The OECD will also release its economic outlook on the 22nd. In September, the OECD forecasted South Korea's economic growth rate for next year at 2.2%.

There is also analysis that the OECD may revise down its economic growth forecast for South Korea. This is because recent domestic and international research institutions have lowered their forecasts for South Korea's economic growth rate next year. In fact, the Korea Development Institute (KDI), a government-funded research institute, lowered its forecast for next year's economic growth rate from 2.3% to 1.8% on the 10th of this month. Hana Financial Management Research Institute and the international credit rating agency Fitch forecast South Korea's economic growth rate next year at 1.8% and 1.9%, respectively.

Meanwhile, the government will announce key details related to this year's comprehensive real estate tax notices on the 21st. The government plans to present the number of taxpayers and the tax amount. According to the Ministry of Strategy and Finance, about 220,000 single-home owners will receive comprehensive real estate tax notices this year. The total number of taxpayers subject to the housing portion of the comprehensive real estate tax is expected to reach 1.2 million this year, surpassing 1 million for the first time since the tax was introduced in 2005.

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