Economists Expect Bank of Korea to Pause at 3% Before Possible November Hike
All six economists in a new survey expect the Bank of Korea to keep its benchmark rate at 3 percent this week, pausing after two consecutive increases while inflation, growth and financial stability remain under review.
South Korean economists unanimously expect the Bank of Korea to leave its benchmark interest rate unchanged at 3 percent when its Monetary Policy Board meets Thursday, giving households and businesses time to absorb two consecutive increases.
All six economists surveyed forecast a pause following rate rises in July and August. Their consensus reflects a view that the central bank needs more time to assess how tighter borrowing conditions are moving through the economy before deciding whether another increase is necessary.
The case for holding this week rests partly on signs that some inflation pressures have moderated. Core inflation, which excludes volatile food and energy prices, slowed to 2.8 percent in September from 3.4 percent in August. The Korean won has also strengthened to around 1,330 per U.S. dollar, helping offset some of the pressure created by higher oil prices.
Analysts nevertheless see the pause as temporary rather than the end of the tightening cycle. All six survey participants expect the BOK to raise the policy rate again in November. Consumer inflation is projected to remain above the central bank’s 2 percent target, while strong semiconductor exports are supporting economic growth and could preserve room for further tightening.
The competing forces leave policymakers balancing price stability against the burden of higher borrowing costs. A third straight increase could add pressure on indebted households and domestic companies, while waiting too long could allow elevated inflation to persist. The central bank must also consider financial stability as it determines the timing and pace of any additional action.
BOK Governor Shin Hyun-song recently indicated that policymakers consider how much time economic participants need to adapt to monetary changes and their capacity to do so. He has also maintained a hawkish position, saying inflation is likely to remain above target for a considerable period.
Thursday’s decision will therefore be closely watched less for an immediate rate change than for guidance on November. Any shift in the BOK’s assessment of inflation, semiconductor-led growth, the won and oil prices could alter expectations for the next move. For now, the surveyed economists see a one-meeting pause followed by another increase as the most likely path.