KB Securities analyst Im Jae-kyun predicts the Bank of Korea will raise its base rate by 25 basis points unanimously at the July Monetary Policy Committee meeting. The analyst stated this decision comes as the hawkish stance shows signs of easing, with inflation and exchange rate concerns somewhat alleviated. South Korea's growth rate is expected to comfortably exceed 3% this year while inflation remains above target levels, yet recent data shows moderation in price pressures and currency stabilization that may limit further aggressive tightening.
KB Securities Predicts 25bp Rate Hike in July
Im Jae-kyun of KB Securities stated the Bank of Korea will raise the base rate by 25 basis points unanimously at the July monetary policy committee meeting. The analyst noted that while the growth rate will comfortably exceed 3% this year and inflation remains above target, the central bank will not rule out additional rate increases after the July hike. However, Im assessed that somewhat eased concerns about inflation and exchange rates are positive factors.
June CPI Rose 3.16% Year-Over-Year
Im pointed out that June consumer price index (CPI) rose 3.16% year-over-year, but increased only 0.06% month-over-month due to declining travel-related product prices and lower fuel surcharges. The analyst stated that considering electricity bill discounts, the July inflation rate will also record a low level. Im noted that while international oil prices rebounded after U.S.-Iran tensions, Brent crude oil remains below $80, suggesting the market does not reflect the possibility of significant escalation.
The analyst assessed that upside risks to inflation from wage increases could also be limited. Im stated that inflationary pressure from demand could be significantly alleviated if minimum wage does not rise sharply, adding that inflation will likely slow after peaking in August when base effects are strongest.
Minimum Wage Negotiations Show Limited Gap
Negotiations for the 2027 minimum wage are ongoing, with labor proposing 11,350 won and management proposing 10,490 won, showing a relatively small gap between the two sides. Im stated this limited difference suggests minimum wage increases may not be substantial.
Dollar-Won Exchange Rate Falls to Early 1,500 Won Range
Im assessed that the dollar-won exchange rate and housing price increases will not support the Bank of Korea's steep rate hikes. The exchange rate recently fell to the early 1,500 won range, and won depreciation pressure could ease due to capital inflows from SK Hynix's ADR (American Depositary Receipt) listing. The analyst also identified as a positive factor for the won that foreign selling of housing has eased as domestic stock prices recently underwent correction.
Housing Price Link to Interest Rates Weakened
Regarding housing prices, Im stated that while the upward trend is concerning, the link between interest rates and housing prices has weakened compared to the past.
Interest Rate Curve Expected to Steepen Short-Term
The analyst noted that as concerns about additional rate hikes somewhat ease, interest rates will face downward pressure. Im pointed out that the 10-year to 3-year yield curve could steepen in the short term (curve steepening) as the hawkish stance from the upcoming Bank of Korea meeting is confirmed to be easing.
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FAQ
What did KB Securities predict about the Bank of Korea's July meeting?
KB Securities analyst Im Jae-kyun predicted the Bank of Korea will raise its base rate by 25 basis points unanimously at the July Monetary Policy Committee meeting.
Why does the analyst expect inflation pressure to ease?
Im stated that June CPI rose only 0.06% month-over-month due to declining travel product prices and lower fuel surcharges, and that considering electricity bill discounts, July inflation will also record a low level. The analyst added that inflation will likely slow after peaking in August when base effects are strongest.
What factors are supporting won currency stabilization?
The dollar-won exchange rate recently fell to the early 1,500 won range, and capital inflows from SK Hynix's ADR listing are expected to ease won depreciation pressure. Additionally, foreign selling of housing has eased as domestic stock prices underwent correction.
