Svmuu News: Economists expect the Bank of Korea to raise interest rates on Thursday for the first time in more than three years, with another hike expected before the end of the year. South Korea’s inflation rate rose to 3.2% in June, a two-and-a-half-year high, marking the fourth consecutive month it has exceeded the Bank of Korea’s 2% target. Inflation is expected to average around 3% in the second half of this year, paving the way for the start of a tightening cycle. Strong economic growth, rising housing prices, and persistently high household debt have provided policymakers with room to tighten monetary policy. South Korea’s economy grew at its fastest pace in nearly six years in the first quarter, and Bank of Korea Governor Shin Hyun-sung said that, given high oil prices triggered by the conflict in the Middle East, inflation is expected to exceed the central bank’s target for a considerable period, making an interest rate hike necessary.
In a survey conducted from July 7 to 13, all but one of the 37 economists polled expected the Bank of Korea to raise its benchmark interest rate to 2.75% on July 16. Most of the economists surveyed (28 out of 31) expect one more rate hike by the end of the fourth quarter, bringing the policy rate to 3.00%. One of them predicted the benchmark rate would reach 3.25%, while the other two predicted it would remain at 2.75%. The median forecast indicates that the Bank of Korea will raise the benchmark interest rate to 3.25% in the first quarter of 2027 and maintain it at that level at least through the end of next year, which is 25 basis points higher than the forecast in the May survey. (Jin Shi)