More Bond Experts Expect Policy Rate Hike... "Prolonged Middle East Risks"

The proportion of bond market experts who expect a policy rate hike at the April Monetary Policy Board meeting (Monetary Policy Committee) has increased compared to the previous survey. As expectations for increases in inflation and the exchange rate have weakened compared to the previous month, sentiment in the bond market for May has improved.

The Korea Financial Investment Association announced on April 8 the results of its "May Bond Market Survey Index (BMSI)," which surveyed 100 bond experts between March 30 and April 2.

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According to the survey, 93% of respondents expect the Bank of Korea to keep the policy rate unchanged at the Monetary Policy Board meeting on April 10, while 6% expect a rate hike and 1% expect a rate cut. In the survey regarding the February Monetary Policy Board meeting, 99% expected a freeze and 1% expected a cut, showing an increase in responses expecting a rate hike.

Regarding this, the Korea Financial Investment Association explained, "Due to the prolonged geopolitical risks in the Middle East, concerns over rising oil prices and exchange rates have led to increased expectations for a policy rate hike at this month's Monetary Policy Board meeting compared to the previous survey."

Bond market sentiment regarding market rates, inflation, and the exchange rate has improved compared to the previous month. The proportion of respondents expecting higher rates was 23%, down 2 percentage points from the previous month, while those expecting lower rates rose by 1 percentage point to 25%. The association noted, "Despite uncertainties in the global bond market, expectations for foreign capital inflows due to Korea’s inclusion in the World Government Bond Index (WGBI) in April appear to have contributed to improved sentiment."

Although most still expect inflation to rise due to higher international oil prices, the proportion of respondents expecting inflation to fall increased compared to the previous month, influenced by the government’s implementation of a cap on petroleum product prices. The share of respondents expecting inflation to rise was 31%, down 19 percentage points from the previous month, while those expecting inflation to fall rose from 0% to 12%.

For the exchange rate, the proportion of respondents expecting it to rise was 24%, down 11 percentage points from the previous month, while those expecting it to fall increased by 4 percentage points to 19%. The association added, "With a mix of domestic and external variables, such as the potential prolongation of the Middle East conflict, and with the recent won-dollar exchange rate exceeding KRW 1,500, there is a prevailing perception that the potential for further increases is limited."

The overall BMSI stood at 96.3, up 5.5 percentage points from the previous month. The BMSI reflects bond market sentiment; a reading of 100 or higher indicates positive market sentiment, such as expectations for higher bond prices. Conversely, a reading below 100 indicates subdued sentiment in the bond market.

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