The Bank of Korea is expected to keep its benchmark interest rate steady at 3.00% during its monetary policy meeting on October 22. Following two consecutive rate hikes in July and August, analysts believe the central bank will take a pause this month to assess the impact of its policies. However, due to ongoing inflationary pressures, the market anticipates an additional rate increase in November, potentially raising the benchmark rate to 3.25%.
According to the Bank of Korea, the Monetary Policy Committee will convene on October 22 to decide on the interest rate. Market expectations suggest that the rate will remain unchanged this month, with a possible increase next month.
Previously, the Bank of Korea raised the benchmark rate from 2.50% to 2.75% in July, followed by another increase of 0.25 percentage points in August, bringing it to 3.00%. This marked a 'back-to-back' increase over two months, aimed at proactively addressing inflationary pressures, stronger-than-expected growth, and concerns over household debt.
Market analysts believe that the Bank of Korea has sufficiently demonstrated its commitment to monetary tightening with the two consecutive hikes, reducing the immediate necessity for further increases. They also note that there is a lag in the effects of interest rate hikes on consumption, investment, and inflation, supporting the outlook for a pause.
Recent comments from Bank of Korea Governor Rhee Chang-yong reinforce this view. During a National Assembly audit, he explained that the consecutive rate hikes in July and August were intended to buy time, suggesting that raising rates defensively in response to market pressures was less costly for the economy.
The Bank of Korea maintains that it may consider further rate hikes depending on future inflation trends. Governor Rhee projected that the inflation rate would remain above the target of 2% for a considerable period, indicating that the timing and pace of any additional rate increases would be primarily determined by inflation developments.
In fact, the consumer price inflation rate reached 3.1% in August, significantly exceeding the target level. Although the rate decreased to 2.9% in September, this was largely due to the fading impact of telecommunications costs. Factors such as increased exports and investment from the semiconductor boom, along with improved income conditions leading to a recovery in consumption, are also contributing to upward pressure on demand-side prices.
In its economic outlook released in August, the Bank of Korea projected a 3.3% growth rate for the year. With robust growth and persistent inflation concerns, the need to maintain a tightening monetary policy is likely to increase.
Market attention is focused on the timing of any additional rate hikes. The median forecast for the benchmark rate six months from the August meeting was 3.25%, indicating a potential for one more increase.
Kim Ji-na, a researcher at YuJin Investment & Securities, stated, "The October Monetary Policy Committee is expected to assess the effects of the two consecutive rate hikes and maintain the benchmark rate to secure room for further increases. This pause should be viewed not as the end of monetary tightening, but as a temporary 'breather.'"
Cho Yong-gu, a researcher at ShinYoung Securities, noted, "With strong export performance continuing and core inflation expected to remain above 2.5% for the time being, the tightening stance is likely to persist. Considering the Bank of Korea's proactive response, solid nominal growth, and the Federal Reserve's shift in rate policy, the next rate hike is anticipated in November."
* This article has been translated by AI.
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