Macroeconomic and bond experts surveyed by Yonhap Infomax unanimously expect the Bank of Korea to raise its base rate by 25 basis points to 2.75% in July. The survey of 19 domestic and international financial institutions, conducted on July 10, found no respondents anticipating back-to-back rate hikes, with 18 out of 19 predicting the rate will hold at 2.75% through September before one additional hike in October or November. Experts cited strong economic growth momentum, inflation reaching 3%, rising debt-financed investment, and the exchange rate sustaining levels around 1,500 won as factors necessitating tightening across growth, inflation, and financial stability considerations.
Survey Shows Unanimous Expectation for 25bp Rate Hike
All 19 financial institutions surveyed by Yonhap Infomax projected the Bank of Korea will increase the base rate to 2.75% in July, representing a 25 basis point hike. None of the respondents anticipated consecutive rate increases. The majority—18 experts—forecast the rate will remain at 2.75% until September, followed by one additional hike in either October or November.
Experts Cite Growth, Inflation, and Exchange Rate Pressures
Experts identified multiple factors supporting the need for a July rate increase. Woo Hye-young, researcher at LS Securities, stated: "We forecast a unanimous 25bp hike at the July meeting. At the May Monetary Policy Board meeting, the Bank of Korea raised both economic and inflation forecasts across the board, and in the inflation target operation review, the BOK projected that inflation will continue at high levels for a considerable period ahead, although upside risks from oil prices eased with the US-Iran ceasefire agreement."
Gong Dong-rak, researcher at Daishin Securities, noted: "As expected inflation has risen due to elevated oil prices following the Iran war, inflation restraint through base rate hikes is necessary. Additionally, surrounding conditions including growth, financial stability, and exchange rates all indicate the need for rate increases, so we forecast a base rate hike will occur at the July Monetary Policy Board meeting."
The exchange rate maintaining levels around 1,500 won added weight to the case for tightening, according to experts.
Forward Rate Path Expectations Diverge After July
Market participants' attention has shifted to the future rate path, as the July hike is already fully priced in. Choi Ji-wook, researcher at Korea Investment & Securities, stated: "We basically expect hikes in July and October, followed by a prolonged freeze at 3.00%. If oil prices rise significantly again or demand-side inflation pressures emerge strongly, there is also a possibility of consecutive hikes in August."
Park Seok-gil, researcher at JPMorgan, commented: "While upward pressure on inflation has eased due to falling international oil prices, there remains room for GDP growth forecasts to be revised significantly upward, so upside risks to the base rate are expected to continue."
Lim Jae-gyun, researcher at KB Securities, observed: "As the exchange rate's upward momentum has slowed, the possibility of consecutive hikes has largely diminished, and while inflation rose after the war, secondary spillover effects from high oil prices have not yet been confirmed. Considering this, we expect a hike in July followed by another in October."
Bank of Korea to Update Growth Forecast in August
The Bank of Korea presented a 2026 growth forecast of 2.6% in May, but bond market participants view an upward revision to around 3% as inevitable. The average forecast from eight major global investment banks as of late last month stood at 3.0%.
In a written response to a question from Representative Park Soo-young of the People Power Party on the National Assembly's Strategy and Finance Committee on July 8, the Bank of Korea stated: "We plan to release a new forecast in August reflecting changes in domestic and external conditions since the last forecast in May."
Kim Ji-man, researcher at Samsung Securities, noted: "This time, neither economic forecasts nor dot plots will be released. Considering the governor's usual remarks, hints are expected to be very limited."
FAQ
What did the survey of financial institutions predict about the Bank of Korea's July rate decision?
All 19 financial institutions surveyed by Yonhap Infomax on July 10 unanimously predicted the Bank of Korea will raise the base rate by 25 basis points to 2.75% in July. No respondents expected back-to-back rate hikes.
Why do experts expect the Bank of Korea to raise rates in July?
Experts cited strong economic growth momentum, inflation reaching 3%, increased debt-financed investment, and the exchange rate sustaining levels around 1,500 won as factors necessitating rate increases across growth, inflation, and financial stability considerations.
