BoK Preview: Forecasts from six major banks, 25 bps or 50 bps?

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Wednesday, October 12 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of six major banks. 

At the last meeting on August 25, the bank hiked rates by 25 basis points (bps) to 2.50%. Now, the BoK could increase rates by 50 bps to 3% though some banks call for another 25 bps hike.

ANZ

“We expect the BoK to hike its policy rate by 50 bps against a backdrop of persistent price pressures and rising concerns about stability. The BoK has made it clear that inflation will remain its top priority if it stays between 5-6%. The latest September datashowed the headline print at 5.6% YoY, which is likely to pick up in October amid hikes to electricity and city gas prices, before moderating gradually thereafter. A 50 bps rate hike by the BoK would help contain the negative policy rate differential with the US and complement recently announced market stabilisation measures.”

SocGen

“We expect a unanimous decision to hike rates by 25 bps from 2.50% to 2.75%. Persistent inflation concerns and the short-term ‘forward guidance’ until the end of this year support continued rate hike action in October. We maintain our base-case scenario for a terminal BoK policy rate at 3.0% after two 25 bps hikes in October and November, which is in line with the BoK’s implicit, near-term forward guidance that was hinted at quite a few times by Governor Rhee. Of course, we will closely monitor Governor Rhee’s press conference for any long-term forward guidance on monetary policy.” 

UOB

“While we see a 25 bps hike in the 7-day repo rate to 2.75% as the base case, the prospect of a more aggressive 50 bps hike to 3.00% has increased. Thus, the odds are certainly tilted towards a higher terminal interest rate than our current forecast of 3.00% as BoK is likely to hike further in Nov (last meeting of 2022) and even into 1Q23 if inflation does not cool as fast as it hoped. We will get a better sense of that from BoK’s post-decision press conference.”

Standard Chartered

“We expect the BoK to hike the policy rate by 50 bps to align with the Fed and contain inflation. If the BoK hikes by only 25 bps in October and the Fed by 75 bps in November, the rate differential would go beyond 1%. BoK’s governor signalled that the central bank will aim to maintain a rate differential of less than 1%; we therefore expect a 50 bps rather than a 25 bps hike. We also do not see BoK hiking aggressively by 75 bps, given already high household debt and declining housing prices. Also, moderating CPI should ease pressure on the BoK for more hawkish hikes. We expect the BoK to hike by 25 bps each in November 2022, January 2023 and February 2023 to control inflation (which remains above 5%).”

ING

“We expect the BoK to raise interest rates by 50 bps, given the faster-than-expected rate hike by the Fed coupled with persistently high domestic inflation.”

TDS

“Recent hawkish BoK comments, elevated and sticky inflation, and weaker KRW, all point to another 50 bps move at this meeting. While BoK is unlikely to follow the Fed toe to toe, further hikes are likely.”

See: USD/KRW set to advance nicely towards 1,597/1,600 – Credit Suisse