BNP Paribas raised its forecast for the Bank of Korea's terminal interest rate from 3.00% to 3.25% on the 18th, according to financial sector sources. The adjustment followed the BOK's Monetary Policy Board decision on the 16th to raise the base rate by 25 basis points to 2.75%. BNP Paribas economist Yoon Ji-ho cited sustained upside surprises in economic indicators and prolonged inflationary pressure as reasons for the revision. The BOK's recent rate hike reflects ongoing efforts to manage inflation amid resilient economic growth in South Korea's financial markets.
BNP Paribas Adjusts BOK Terminal Rate Forecast to 3.25%
BNP Paribas economist Yoon Ji-ho published a report on the 16th explaining the upward revision in the terminal rate forecast. Yoon stated the change accounts for "sustained upside surprises in economic indicators and inflationary pressure that has persisted longer than expected." The revised 3.25% terminal rate projection replaces the previous 3.00% estimate.
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BNP Paribas - Yonhap News file photo
Economist Assesses BOK Governor's Monetary Policy Stance
Yoon evaluated BOK Governor Shin Hyun-song's tone at the press conference as more neutral than market expectations, though some remarks on growth and inflation carried hawkish elements. The economist noted that the BOK did not signal it was "behind the curve" in its policy response. Governor Shin described upcoming monetary policy meetings as "live meetings," indicating rate decisions will be made flexibly based on economic data. Yoon emphasized the BOK will monitor whether robust economic growth translates into demand-side inflationary pressure.
BNP Paribas Outlines Base and Alternative Rate Hike Scenarios
The base scenario presented by Yoon projects 25 basis point rate increases in October this year and January next year. An alternative scenario anticipates hikes in August and November this year. Yoon identified the Q2 GDP announcement on the 23rd and the July CPI release on August 4 as key data points that will provide clues regarding potential consecutive rate hikes in July and August.
BNP Paribas Projects South Korea GDP and CPI Growth
BNP Paribas forecasts real GDP growth of 3.1% this year and 2.2% next year. The firm projects CPI inflation of 2.6% this year and 2.3% next year. BNP Paribas assessed that markets are pricing in excessive domestic rate hikes, considering the recent decline in the dollar-won exchange rate and diminished concerns about US interest rate increases.
FAQ
What terminal rate did BNP Paribas forecast for the Bank of Korea?
BNP Paribas raised its forecast for the BOK's terminal interest rate to 3.25% from the previous 3.00% estimate, as announced on the 18th following the BOK's 25 basis point rate hike to 2.75% on the 16th.
When does BNP Paribas expect the next BOK rate increases?
BNP Paribas economist Yoon Ji-ho outlined a base scenario with 25 basis point rate hikes in October this year and January next year, with an alternative scenario projecting increases in August and November this year.
