Bank of Korea signals further rate hikes with updated 'dot plot'

The Bank of Korea's Monetary Policy Board decided to raise the benchmark interest rate by 0.25 percentage points, bringing it to 3.00%. This decision was supported by six of the seven board members, with one member, Hwang Kun-il, advocating for maintaining the rate at 2.75%.

Accompanying the rate hike decision, the board released an updated 'dot plot,' which reflects the board members' individual conditional forecasts for interest rates six months ahead. This updated plot shows a substantial upward revision compared to May. The 21 individual forecasts are now distributed as follows: six members project 3.50%, ten expect 3.25%, and five anticipate 3.00%. This indicates a clear signal of further potential rate increases.

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The domestic economy is continuing to grow faster than expected, driven by strong exports and recovering domestic demand, and inflation is expected to remain above the target level for a considerable period.

In May, the dot plot distribution was significantly lower: two members projected 3.25%, ten expected 3.00%, seven anticipated 2.75%, and two predicted 2.50%. The current distribution signals a more hawkish outlook among board members.

The Monetary Policy Board cited the domestic economy's robust growth, driven by strong exports and recovering domestic demand, as a key factor. Furthermore, inflation is expected to remain above the target level of 2% for a considerable period. The board also noted the continued need to monitor financial stability risks, justifying the need for a rate increase.

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Given the need to continue paying attention to financial stability risks, it was judged appropriate to raise the benchmark interest rate by 0.25 percentage points.