BOK expected to hold rates in October after two straight hikes

The Bank of Korea (BOK) is widely expected to leave its benchmark interest rate unchanged at its Oct. 22 monetary policy meeting after raising rates twice in July and August, as easing inflation and a stronger won give policymakers room to assess the impact of earlier tightening.

Market analysts increasingly expect the central bank to pause this month before potentially resuming rate hikes in November.

Samsung Securities said the Monetary Policy Board had cited the need to prevent inflation from spreading more broadly when it raised rates in August, but subsequent inflation data have shown signs of easing.

Consumer price inflation slowed to 2.9 percent in September from 3.15 percent in August, while core inflation, which excludes food and energy, fell to 2.8 percent from 3.4 percent.

The brokerage said easing inflation, the won’s appreciation and increased stock market volatility have reduced the need for a third consecutive rate hike.

BOK Gov. Shin Hyun-song also said during a parliamentary audit on Oct. 12 that the central bank would reassess the need for an October rate increase from scratch. He noted that the preemptive August hike had bought policymakers time.

Samsung Securities therefore considers an October rate hold virtually certain.

The brokerage said attention is now shifting to the size and pace of future rate increases. It maintained its forecast for three additional hikes in November this year and February and May next year, bringing the terminal policy rate to 3.75 percent.

However, it added that slowing inflation, weakening consumption and falling stock prices could justify a smaller cumulative increase than previously expected.

“Given easing inflation, the stronger won and increased stock market volatility, conditions do not warrant three consecutive rate hikes,” said Kim Ji-man, an analyst at Samsung Securities. “It will be important to watch how the central bank assesses the spread of economic growth into domestic demand.”

KB Securities also expects the Monetary Policy Board to vote unanimously to hold rates this month.

The brokerage noted that Shin had described the back-to-back rate hikes in August as an unusually forceful measure.

It also said the won’s appreciation against the dollar since July could increasingly help offset inflationary pressures toward the end of the year, reducing the need for another immediate increase.

KB Securities expects the BOK to maintain a hawkish stance despite holding rates in October, viewing the pause as an adjustment to the pace of monetary tightening rather than a shift in policy direction.

Eugene Investment & Securities likewise forecast an October hold, saying the central bank would use the time to assess the effects of its July and August hikes while preserving room for further tightening.

The brokerage sees November as the most likely timing for the next increase.

It said the current 3 percent benchmark rate is already burdensome and has entered restrictive territory, but external inflationary pressures, including elevated global oil prices, and strong economic growth continue to support the case for additional tightening.

“The BOK is focusing on elevated demand-side inflationary pressures,” said Kim Ji-na, an analyst at Eugene Investment & Securities. “If expectations for high oil prices and semiconductor-led economic growth remain unchanged, a November rate hike is entirely possible.”