Societe Generale forecasts two Bank of Korea base rate hikes this year

Societe Generale (SG) predicts the Bank of Korea will raise its base interest rate by 0.25 percentage points twice in the second half of this year. This is interpreted as a measure to curb inflation.

Prior to the outbreak of war between the U.S. and Iran, SG economist Michelle Lam had forecast the Bank of Korea's base rate hike would occur in 2027. Lam explained that the impact of the Iran situation on exports is limited due to demand for artificial intelligence (AI), and government fiscal support measures have eased the shock to real incomes, leading to an earlier anticipated rate hike.

Lam explained that two rate hikes by the Bank of Korea would bring the rate to around 3.0%, a level 50 basis points lower than the 3.5% peak seen after the COVID-19 pandemic. She added that an earlier rate hike limits the need for aggressive future rate increases. Lam further commented that interest rates are expected to fall back to 2.5% thereafter, a projection for the period after 2027 when the growth effects from the tech sector diminish.