10 of 21 dots land at 3.25% in August survey

Monetary Policy Board shifts higher from May's 3.00% cluster

Second consecutive hike sends short-term bond yields surging

The Bank of Korea's August benchmark interest rate dot plot [Bank of Korea]
The Bank of Korea's August benchmark interest rate dot plot [Bank of Korea]

The Bank of Korea's Monetary Policy Board dot plot released Thursday showed the committee's six-month rate outlook shifting further toward tightening compared with May, with nearly half of all dots clustering at 3.25% and reinforcing the central bank's rate-hike trajectory.

Of the 21 dots on the chart, 10 — or 47.6% — landed at 3.25%, above the current benchmark interest rate of 3.0%. Six dots, or 28.6%, pointed to 3.50%, implying a half-percentage-point increase, while five dots, or 23.8%, favored holding at the current 3.0%. The high was 3.50% and the low was 3.0%, with a median of 3.25% and a mean of 3.26%.

The dot plot is compiled from individual rate projections submitted by each of the seven Monetary Policy Board members, including the governor, with each member placing three dots for a total of 21. The August chart marks a clear upward shift from May, when 10 of the 21 dots clustered at 3.0% — the most common projection at the time. This time, 3.25% drew the largest concentration.

The shift signals that board members are increasingly leaning toward further rate increases. A single 25-basis-point hike from the current 3.0% would bring the rate to 3.25%, while some members placed dots at 3.50%, suggesting they see the possibility of two additional hikes. Given that each member submits three dots, at least three members appear to be leaving open the possibility of at least one more hike through the first quarter of next year.

An Jae-gyun, a researcher at Korea Investment & Securities, said the fact that fewer than seven dots landed at 3.50% should ease market concerns that the terminal rate could climb above that level. "It will give the market some reassurance," he said. With the gap between the mean and median remaining narrow, analysts interpreted the results as suggesting the Bank of Korea would proceed cautiously on the pace and scale of any further tightening.

In its monetary policy statement, the Bank of Korea said it would "monitor growth trends and conduct monetary policy with attention to financial stability, so that inflation can stabilize at the target level over the medium term," adding that it would "carefully assess inflation, economic conditions and financial stability in determining the timing and pace of any additional rate increases."

With market expectations for the August decision having been evenly split between a hike and a hold, the announcement of a second consecutive increase sent short-term bond yields sharply higher during trading. Around 10:20 a.m., the yield on the benchmark three-year Treasury bond rose 6.9 basis points from the previous session's market average to 3.886%, while the two-year note climbed 6.2 basis points to 3.762%. Min Ji-hee, a researcher at Mirae Asset Securities, said the Bank of Korea's significant upward revision to its growth outlook pointed to elevated benchmark interest rates extending into next year. "Right after the hike was announced, Treasury yields jumped, led by the short end," she said.

Markets broadly expect the Bank of Korea to pause in the fourth quarter to assess the cumulative effects of tightening before delivering one more hike in the first quarter of next year. Kim Chan-hee, a researcher at Shinhan Investment, said the next increase was more likely to come in the first quarter of next year than before year-end. "Since this hike has a strong preemptive character, there is a need to see more data on inflation and growth at the two remaining Monetary Policy Board meetings this year," he said.


forest@heraldcorp.com
kimstar@heraldcorp.com