HSBC: Bank of Korea expected to implement a preventive 25-basis-point rate hike this week

Odaily Odaily, HSBC economist Jin Choi stated that the market generally expects the Bank of Korea to implement a preventive 25-basis-point rate hike this week. Although there have been recent local conflicts in the Middle East, the overall situation is easing, and international oil prices remain relatively stable. However, the South Korean won still faces depreciation pressure, core inflation remains strong, and the outlook for South Korea's economic growth has improved.

Jin Choi believes these factors are sufficient to prompt the Bank of Korea to take a preemptive rate hike action, rather than waiting for oil prices to fall further to curb inflation. He also pointed out that South Korea's export boom driven by artificial intelligence is another crucial factor the Bank of Korea needs to monitor. The earnings from significantly increased exports could be transmitted to domestic demand through channels such as wage increases, higher capital expenditure, and fiscal policy. Broader spillover effects could also fuel demand-pull inflation, prompting the Bank of Korea to enter a deeper rate hike cycle.

HSBC predicts that after this week's rate hike, the Bank of Korea will raise rates by another 25 basis points in the fourth quarter; meanwhile, the risks of further rate hikes in 2027 are skewed to the upside. (Jinshi)