Bloomberg News reported today (28th) that the market is predicting that the Bank of Korea will raise the key interest rate by 0.5 percentage point for the first time ever at the Monetary Policy Committee meeting on the 14th of next month to contain inflation and support the won's value. ) reported.
A Bloomberg estimate based on short-term financial market rates such as money market funds (MMF) shows that market participants expect the Bank of Korea base rate to reach 3.00% in six months.
Currently, the BOK's base rate is 1.75%, meaning that it will raise it by 0.5 percentage points once and by 0.25 percentage points in the other three at the four remaining MPC meetings this year, Bloomberg explained.
The BOK has never raised the base rate by 0.5 percentage points since it adopted the base rate as its main policy tool in 1999.
According to Bloomberg, if the BOK takes such a 'big step' (a 0.5 percentage point increase), it is in line with foreign central banks who are trying to catch inflation that is soaring with a larger-than-expected rate hike.
In addition, the Bank of Korea's big step was evaluated to help support the won's drop to its lowest level in 13 years.
Shin-Eul, a researcher at SK Securities, said, "The Bank of Korea's big step is likely to become a reality," as inflation is expected to continue to intensify.
He predicted that the 10-year government bond yield would rise to 3.95% in the third quarter if the BOK aggressively raises the base rate.
Citigroup and JP Morgan also strengthened the possibility of a 0.5 percentage point increase next month.
Prior to this, Korea's consumer price index rose 5.4% in May, recording the highest rate of increase in nearly 14 years since August 2008.