Brokerages expect Bank of Korea to deliver another rate hike in November

Bank of Korea (BOK) Governor Lee Ju-yeol speaks during a press conference after holding a rate-setting meeting at its headquarters in central Seoul, Thursday. Courtesy of BOK

By Anna J. Park

Following the Bank of Korea (BOK) hiking its key rate by 0.25 percentage points to 0.75 percent last Thursday, the market's attention is turning to if and when the central bank will impose yet another rate hike.

Most brokerages forecast that the central bank will raise the key rate in November, in a bid to rein in soaring household debt and home prices and improve the financial imbalances

While the BOK's Monetary Policy Board is set to have two rate-setting meetings in October and November, more than 80 percent of the country's 20 brokerage research centers that published reports on the matter forecast that the next interest rate raise will be implemented at either of the two remaining meetings. And most expected the November meeting is more likely than October.

“Given the wording during the BOK governor's press conference as well as the announcement, it is highly likely that the central bank will wait and see what the situation is in October,” Shinyoung Securities' latest report on the key interest rate stated. “The next interest rate hike is likely to be decided during November's board meeting, in order to show the central bank's willingness to control the balance of the economy and price inflation.”

During the press conference last Thursday, BOK Governor Lee Ju-yeol hinted that there could be another key rate hike this year, saying, “This is the first step towards the need to resolve accumulated financial imbalances.”

Besides Shinyoung Securities, 12 other brokerage firms' research centers ― including Mirae Asset, NH, Samsung, Meritz, Kiwoom, Kyobo, IBK and KTB ― forecast the November meeting is most likely to witness another rate raise. They stressed that the key goal of the BOK's monetary policy has shifted to responding to the country's financial imbalance risks, forecasting that the central bank would assess the effectiveness of August's interest rate hire during October's board meeting.

“The company forecasts another rate hike would be decided in November, while we expect that the BOK will raise the key interest rate to 1.25 percent by the end of next year,” the analysis paper by Meritz Securities read.

However, other firms, including Shinhan, Hana and eBest Investment, forecast the rate hike to come in October. Their reports stressed the possibility that the BOK could take a further interest rate hike measure preemptively to deal with existing financial imbalances. They also reasoned that negative impacts from COVID-19 are likely to be lessened during the second half.

Out of the 20 companies that published analysis reports on the interest rate issue, four ― Korea Investment, KB, Daishin and SK Securities ― have forecast the next raise will most likely take place during the first quarter of next year. There are two Monetary Policy Board meetings slated for January and February next year.

On Friday, Financial Services Commission (FSC) Chairman nominee Koh Seung-beom also stressed the need for an additional rate hike in the near future, as the increase last Thursday is insufficient to fix the current issues.

"Of much more importance is the future course of the BOK's monetary policy," Koh told lawmakers during a National Assembly confirmation hearing.