[Geumtongwi poll] ① 65% of Experts Say "3.5% is the Interest Rate Peak"… Additional Hike Expected

Survey of 23 Market and Economic Experts

[Asia Economy Reporter Seo So-jeong] As the Bank of Korea is expected to raise the base interest rate by 0.25 percentage points to 3.5% at the first Monetary Policy Committee (MPC) meeting of the new year on the 13th, the biggest point of interest in this MPC is expected to be the final interest rate.

Among experts, 65% responded that the final interest rate would be 3.5% with a 0.25 percentage point increase in January or February, while 30% said the final interest rate would be 3.75% with two 0.25 percentage point increases including January.

January MPC, Overwhelming Expectation of 0.25%P Increase

On the 11th, Asia Economy conducted a survey of 23 analysts from domestic and foreign securities firms, banks, and economic research institutes. Among the 23 respondents, 22 expected the base interest rate to be raised by 0.25 percentage points at this month's MPC. Only one person expected a 'freeze,' making the expectation of a 0.25 percentage point increase overwhelming.

Gong Dong-rak, a researcher at Daishin Securities Asset Research Department, said, "The consumer price inflation rate is still recording the 5% range, so the interest rate hike cycle itself is valid, and the monetary authorities are also showing their determination for price stability." He added, "Although the inflation trend has passed its peak numerically, the absolute level is still high, and expected inflation is also at a burdensome level, so the Bank of Korea will make additional rate hikes."

Heo Jeong-in, a researcher at Daol Investment & Securities, said, "It is certain that major central banks such as the US Federal Reserve and the European Central Bank (ECB) will continue additional tightening in February." He added, "Due to the possibility of capital outflows and the need to defend the Korean won's value, as well as to ease domestic inflationary pressures, additional hikes will be implemented." On the other hand, Kang Min-ju, the only economist from ING Bank who predicted a freeze, said, "Although consumer prices have recently stabilized, as the economic slowdown caused by rate hikes begins in earnest, the Bank of Korea will adjust the pace while observing the effects of previous hikes." Kang predicted that the Bank of Korea would raise the base rate by 0.25 percentage points at the February MPC and then maintain a freeze. He explained the reason for the February hike forecast by saying, "Consumer prices still exceed 4%, and future public utility fee increases will slow down the decline in inflation."

Final Interest Rate, 'Freeze After One Hike' 65% VS 'Additional 0.25%P Hike' 30%

While the weight of the January rate hike is clearly leaning, experts' opinions on the final interest rate were divided. In response to the question about the final interest rate level, more than half of the 23 experts, 15 (65%), answered 3.5%, indicating that the January rate hike would be the last. However, 7 (30%) expected it to be 3.75%, and 1 predicted the final rate would be decided between 3.5% and 3.75%.

Kang Seung-won, a researcher at NH Investment & Securities FICC Research Department, said, "Bank of Korea Governor Lee Chang-yong has already sent sufficient signals for a 0.25 percentage point hike, so there is no practical benefit to freezing rates in January." He added, "Although the possibility of additional rate hikes will be left open during the press conference, this 0.25 percentage point hike will effectively be the last." Hong Chun-wook, CEO of Prism Investment Advisory, said, "Considering the sharp collapse of the export economy and the panic in the real estate market, the final interest rate will be decided at 3.5%."

Park Seok-gil, an economist at JP Morgan, said, "There are downside risks to the Bank of Korea's growth forecast this year, and the MPC this week will confirm the final level of the rate hike cycle (3.5%)." He added, "We will observe the effects of the monetary tightening policy for the next few quarters." Jo Yong-gu, a research fellow at Shin Young Securities, said, "The foreign exchange market has clearly stabilized recently, and the government's emphasis on a soft landing for the real estate market means that policy priorities are focused there, so it seems unlikely that the base rate will be raised to 3.75%." He added, "The need for excessive tightening that damages economic fundamentals has diminished."

On the other hand, some opinions suggested that if the US Federal Reserve's expected final rate exceeds the mid-5% range or if the won-dollar exchange rate surges again, the base rate could be raised to 3.75%. Baek Yoon-min, a research fellow at Kyobo Securities, said, "Considering the need for additional rate hikes to control inflation and the interest rate differential with the US, the base rate should be raised to 3.75%." Yoon Seok-jin, a research fellow at Hana Financial Management Research Institute, said, "With very high uncertainty in the inflation path due to demand-side inflationary pressures from China's reopening and supply instability of raw materials from Russia, and additional inflation risks such as future public utility fee increases (electricity and public transportation fares) domestically, I expect two additional hikes in January and February."

Furthermore, in the February MPC, 15 experts responded that the base rate would be frozen. However, 7 predicted additional rate hikes, reflecting diverse views. Moon Hong-chul, a researcher at DB Financial Investment, said, "Inflation is easing mainly in the US, and economic concerns are growing. The domestic real estate decline problem is spreading more seriously, which could increase macroeconomic concerns, so I expect the base rate to be frozen in February." On the other hand, Ahn Ye-ha, a researcher at Kiwoom Securities, supported an additional 0.25 percentage point hike next month, saying, "Due to the Fed's continued tightening stance, the widening interest rate differential and concerns about foreign capital outflows highlight the need for Korea's additional hikes." Jo Young-moo, a research fellow at LG Economic Research Institute, predicted a freeze in February due to growing concerns about economic slowdown after the 0.25 percentage point hike in January, forecasting the final rate at 3.75%.

Experts Responding to Asia Economy's MPC Poll

Kang Min-ju, Economist at ING Bank; Kang Seung-won, Researcher at NH Investment & Securities FICC Research Department; Gong Dong-rak, Researcher at Daishin Securities Asset Research Department; Kim Sun-tae, Economist at KB Kookmin Bank; Kim Sung-soo, Researcher at Hanwha Investment & Securities; Moon Hong-chul, Researcher at DB Financial Investment; Park Seok-gil, Economist at JP Morgan; Park Jung-woo, Economist at Nomura Securities; Baek Yoon-min, Research Fellow at Kyobo Securities; Ahn Ye-ha, Researcher at Kiwoom Securities; Ahn Jae-gyun, Economist at Shinhan Investment Corp.; Woo Hye-young, Researcher at Ebest Investment & Securities; Yoon Seok-jin, Research Fellow at Hana Financial Management Research Institute; Yoon Yeo-sam, Research Fellow at Meritz Securities; Lee Jae-hyung, Researcher at Yuanta Securities; Lim Jae-gyun, Senior Researcher at KB Securities Asset Allocation Strategy Department; Jung Kyu-chul, Head of Economic Outlook Office at KDI; Jung Sung-tae, Research Fellow at Samsung Securities; Jo Young-moo, Research Fellow at LG Economic Research Institute; Jo Yong-gu, Research Fellow at Shin Young Securities; Joo Won, Head of Economic Research at Hyundai Research Institute; Heo Jeong-in, Researcher at Daol Investment & Securities; Hong Chun-wook, CEO of Prism Investment Advisory