Economists bring forward South Korea's next rate hike amid inflation: poll

[SEOUL] Economists surveyed by Bloomberg now see the Bank of Korea hiking its benchmark interest rate one quarter earlier than they expected previously, as inflation stays stubbornly high.

The Korean central bank will probably raise its rate by 25 basis points to 1.5 per cent in either its April or May meeting, the latest survey results show. That would match the rate seen in the summer of 2019, well before the pandemic hit.

"South Korea's elevated inflation and continued robust economic recovery momentum point to further monetary normalisation in the near term," said Tuuli McCully, head of Asia-Pacific economics at Scotiabank, forecasting the rate to rise to 2.00 per cent by the end of this year.

Another rate hike to 1.75 per cent is likely to be in the third quarter, which is faster than the second quarter of next year previously projected. The rate may reach 2 per cent in the third quarter of next year.

Separately, consumer prices are expected to accelerate to 2.6 per cent on average this year from 2.2 per cent previously. Inflation will likely start to fall from 3.3 per cent this quarter to an average of 1.6 per cent next year. Economists maintained their economic growth forecasts for this and next year at 3 per cent and 2.6 per cent respectively.

"With supply chain conditions likely to remain tight for at least the first half and global commodity prices staying lofty, inflation remains a key risk to macroeconomic stability," said Bernard Aw, head of Asia-Pacific economics at Coface in Singapore, pointing out that the risk of financial imbalances will likely stay on top of mind for the policymakers. BLOOMBERG