The Monetary Policy Committee of the Bank of Korea (hereinafter referred to as the Monetary Policy Committee) is expected to raise the base rate by 0.25 percentage points (p) more tomorrow (the 25th).



This is because it is difficult to be sure that the consumer price index, which soared more than 6% last month, has yet to reach its peak, and if the gap widens while the US base rate (policy rate) is already higher than ours, it is unfavorable to prices and exchange rates.



However, as concerns about economic slowdown as well as inflation have grown, the possibility of the BOK being forced to pour cold water on the economy with a big step (a 0.50% point increase in the base rate at once) for two months in a row is unlikely.



According to today's financial market, most economists predict the MPC's first four consecutive (April, May, July and August) rate hikes.



The most important reason for the prospect of further hikes is still the large inflationary (inflation) pressures.



The consumer price index (108.74) in July jumped 6.3% from the same month last year due to the rise in prices of food and agricultural products, which is the highest increase in 23 years and 8 months since November 1998 (6.8%).



The expected inflation rate, which corresponds to the expected inflation rate for the next year, was 4.3% this month, slightly lower than the record high of July (4.7%) in July, but it is still above the 4% level.



Jeon Seong-in, a professor of economics at Hongik University, said, "Although inflation in the US has calmed down a bit, in the case of Korea, there is a possibility that the inflation rate will remain high until the second half of the year." I'm going to step on it," he expected.



Not only inflation, but also the 'inverted' state of the benchmark interest rate in Korea and the US is also putting pressure on the MPC to raise the base rate.



After the US Federal Reserve (Fed) took a 'giant step' for two months in a row (a 0.75 percentage point increase in the benchmark interest rate at once) at the regular meeting of the Federal Open Market Committee (FOMC) on the 27th (local time) of last month, the US base rate (2.25-2.50%) was higher than Korea (2.25%).



The BOK has no choice but to reduce the risk of foreign investment capital outflow, won depreciation, and increase in import prices due to exchange rate fluctuations as much as possible by narrowing the gap by raising the base rate.



In particular, as the won/dollar exchange rate has recently been unstable again, the BOK needs to raise the base rate even to defend the exchange rate.



Seong Tae-yoon, a professor of economics at Yonsei University, said, "A rate hike is inevitable at the Monetary Policy Committee meeting."



However, experts did not expect the MPC to take a big step for the second month in a row following July, given the unstable economic situation.



Cho Young-moo, a researcher at the LG Business Research Institute, said, "Inflation requires an interest rate hike, but even the BOK will feel burdened by the possibility of an economic recession to raise 0.5 percentage points." There is a forecast that the government will stop or shift toward easing, which will affect the BOK as well.”



In a survey conducted by the Financial Investment Association of 100 people holding and managing bonds, 97% predicted an increase, and 91% of them suggested 0.25 percentage points as the expected increase.



(Photo = Courtesy of the Photo Investigation Foundation, Yonhap News)