HSBC: Bank of Korea expected to deliver a preemptive 25bp rate hike this week

Odaily Planet Daily News HSBC economist Jin Choi said the market generally expects the Bank of Korea to implement a preemptive 25 basis point rate hike this week. Although there have been recent localized conflicts in the Middle East, the overall situation has eased, and international oil prices have remained relatively stable. However, the Korean won still faces depreciation pressure, core inflation remains firm, and South Korea's economic growth prospects have improved.

Jin Choi believes these factors are sufficient to prompt the Bank of Korea to take preemptive rate hike action, rather than waiting for oil prices to fall further to cool inflation. He also noted that the export boom driven by artificial intelligence in South Korea is another important factor the Bank of Korea needs to monitor. The gains from the sharp increase in exports could be transmitted to domestic demand through channels such as wage increases, increased capital expenditure, and fiscal policy, and broader spillover effects could also fuel demand-pull inflation, potentially pushing the Bank of Korea into a deeper rate hike cycle.

HSBC expects that after this week's rate hike, the Bank of Korea will raise rates by another 25 basis points in the fourth quarter; at the same time, the risk of further rate hikes in 2027 is tilted to the upside. (Jin Shi)