As to whether the Bank of Korea will raise interest rates on Thursday or suspend it, 10 of the 19 South Korean economists interviewed by the media believe that the Bank of Korea will follow the example of the Federal Reserve of New Zealand, taking into account the recent increasingly serious epidemic of COVID-19. Choose to suspend raising interest rates. The rest are expected to raise interest rates by 25 basis points to 0.75% on Thursday.
Analysts generally believe that recent data show that South Korea is more inclined to raise interest rates this year. South Korean exports continued to pick up and consumption remained largely optimistic, but CPI rose 2.6 per cent in July from a year earlier, up from 2.4 per cent in June. Since April, inflation has exceeded the central bank's medium-term target of 2% a month.
In addition, South Korean household debt has soared to record levels. Total household loans in South Korea rose 10.3% from a year earlier, the biggest increase since 2003, according to a statement issued by the Bank of Korea on Tuesday.
Rising debt has added to the Bank of Korea's concerns that even as South Korea emerges from the effects of the epidemic, financial imbalances are rising at a rate that could endanger the economy. Therefore, there are signs that the prevention of financial risks should take precedence over economic growth measures.
Since the Bank of Korea kept its benchmark interest rate at 0.5 per cent on July 15, an average of more than 1000 new COVID-19 patients have been diagnosed in South Korea every day, and the vaccinated population is less than 1/4 of the population. It is understood that the South Korean government has imposed stricter and longer restrictions to contain the epidemic, which are likely to put pressure on the fragile labor market and supply chain.
Barclays analysts Angela Hsieh and Ashish Agrawal wrote in a research note last week: "given that the number of new confirmed cases is still on the rise, the Bank of Korea may suspend raising interest rates this time. But we expect the central bank to raise interest rates again in November if they start raising rates in August. "
The won fell 3.4 per cent against the dollar this quarter, the biggest drop in Asia. According to swap market data, the chances of the central bank of Korea raising interest rates this week are about 40%. In early August, JPMorgan predicted that the Bank of Korea could raise interest rates twice this year. As a result, there was widespread speculation that August and November would be the time to raise interest rates, and capital markets were the first to pay homage. South Korea's composite stock index fell nearly 6% from August 4 to last week.
It is understood that the central bank of Korea will also update its economic forecast at the meeting. In may, the bank had forecast economic growth of 4% this year and an inflation rate of 1.8%. The Bank of Korea will also reassess the impact of the Delta mutation on the economic recovery because it undermines the supply chain that is vital to South Korean exports.
Analysts speculate that if the Bank of Korea chooses not to raise interest rates this week, it is likely to announce an increase at the central bank meeting in October or November. Lee Ju-lie, governor of the Bank of Korea, has repeatedly said that the benchmark interest rate will be raised before the end of the year, and if the central bank does not keep its promise, the credibility of the central bank will be
As a result, the number of people who disagree with Thursday's final decision, as well as the remarks made by central bank governor Li Zhulie at a news conference, will help judge the direction of the Bank of Korea's policy in the coming months.
If you choose to raise interest rates with a large number of dissenting votes, it means that successive tightening is unlikely, and the next decision may take more time.