Bank of Korea Seen Raising Base Rate Four Times

Major domestic banks forecast that the Bank of Korea will raise its base interest rate a total of four times by April of next year, each by 0.25 percentage points. This suggests the benchmark rate could climb as high as 3.5% annually.

This rate hike projection is based on the likelihood that the government's economic stimulus policies will continue into next year, driven by increased corporate tax revenue from the semiconductor industry boom. Corporate tax revenue is estimated to reach approximately 121 trillion won this year and 224 trillion won next year, thanks to the semiconductor boom.

Consequently, the government anticipates it can increase fiscal spending by about 20 trillion won in the latter half of this year and 90 trillion won next year. Reflecting these expanded fiscal spending projections, GDP growth forecasts have been revised upward to 3.0% for this year and 2.8% for next year. This acceleration in economic growth has led to an increased need for monetary tightening.

Furthermore, the sustained high inflation expected through the first half of next year, rising Seoul housing prices, and a bullish domestic stock market were also factors contributing to the Bank of Korea's increased rate hike expectations.