Financial Market

Forecasts from six major banks, a plunge in USD/KRW supports a 25 bps rate hike

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Thursday, November 24 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. 

BoK is expected to hike rates by 25 basis points to 3.25%. At the last policy meeting, the bank hiked rates by 50 bps to 3.00%. 

SocGen

“The BoK is likely to hike rates by 25 bps to 3.25%. A plunge in USD/KRW exchange rate in November will support a ‘baby step’ hike, just as the surging USDKRW exchange rate in September justified the ‘big step’ of a 50 bps hike. A slight rebound in October headline inflation has seen calls for continued monetary tightening, while clearer signs of a slowdown in activity indicators and the sustained ‘credit crunch’ in the corporate credit market also lessen the chances of a 50 bps hike. In the quarterly review of macroeconomic forecasts, the BoK is expected to lower its 2023 GDP forecast but maintain its inflation forecasts.”

ANZ

“We expect the BoK to hike its policy rate by 25 bps to 3.25%. The combination of still elevated inflation, with the latest headline print at 5.7% YoY and core inflation at 4.2% YoY and a hawkish US Federal Reserve means that the central bank’s rate-hike cycle has further room to run. Amid climbing concerns about growth and the credit market, the case for hiking at a more gradual pace has strengthened further. We are sticking with our terminal policy rate forecast of 3.50% by Q12023.”

Standard Chartered

“We expect the BoK to hike the base rate by 25 bps, moderating the pace of hikes; it had hiked by 50 bps in October. We think the BoK will be under pressure to provide more liquidity to the market to maintain financial stability, especially amid growing concerns about a liquidity crunch in the bond market. Recent KRW appreciation and foreign capital inflows should provide breathing room for the BoK to relax its hawkish stance. Still, we expect the central bank to continue hiking its base rate, in order to narrow the interest rate differential with the Fed. Also, inflation remains elevated at above 5%; further tightening of monetary policy is therefore expected.” 

ING

“We expect the BoK to carry out a 25 bps hike. Consumer prices edged up in October but inflation appears to have passed its peak. The recent FX market move probably would be one factor for BoK to adjust its pace of tightening after its recent jumbo increase. However, given that financial market stresses remain high, the BoK will need to consider market stability for its policy decision.”

TDS

“Inflation stayed elevated in Oct but BoK Governor Rhee struck a less hawkish tone and noted that prices have ‘somewhat stabilise’”. We think the BoK has little appetite to proceed with a big hike given the increase in financial market volatility recently. Further, KRW has rebounded 6.9% MTD against the USD and lessens the need for BoK to proceed with big hikes to support KRW.”

MUFG

“We see the BoK likely to raise its 7-day repo rate by 25 bps to 3.25%.”

 

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