Participants in South Korea's bond market have leaned toward a hold on the base rate ahead of the Bank of Korea's Monetary Policy Board meeting scheduled for the 27th of this month, while market sentiment improved slightly.
The Korea Financial Investment Association (KOFIA) released the "September 2026 Bond Market Indicators" with these findings on the 25th. In a survey of 100 bond market professionals conducted from the 13th to the 19th of this month, 79% forecast that the board would hold the base rate, while only 20% expected a hike. That contrasts with last month's survey, in which 66% had expected a rate increase. An upward revision to the growth outlook, inflation pressures and rising household debt remain factors pointing toward a hike, but the recent decline in the won and the rise in market interest rates are seen as supporting the case for a hold.
The composite Bond Market Survey Index (BMSI) came in at 89.5, up 3.3 points from 86.2 the previous month. KOFIA said bond market sentiment had improved even as domestic and external factors remained mixed, including uncertainty over the path of U.S. and Korean monetary policy and geopolitical risk in the Middle East.
The interest rate outlook BMSI rose 15 points to 99.0 from 84.0 the previous month. The share of respondents expecting rates to rise fell to 16% from 30%, while those expecting rates to hold steady increased to 69% from 56%. The shift reflects a stronger wait-and-see stance ahead of the Jackson Hole meeting later this month and the U.S. Federal Open Market Committee (FOMC) meeting in September, as investors watch for the direction of monetary policy.
By contrast, the inflation BMSI edged down to 97.0 from 99.0. The share of respondents expecting prices to rise fell to 9% from 19%, but those expecting prices to hold steady rose sharply to 85% from 63%. The change was attributed to continued uncertainty over the inflation outlook, as core inflation kept climbing even though the July consumer price index growth rate slowed to the 2% range.
The exchange rate BMSI also fell 30 points to 99.0 from 129.0 the previous month. The share of respondents expecting the won to strengthen plunged to 13% from 43%, while those expecting it to hold steady rose to 73% from 43%. This was attributed to a combination of concerns over rising import costs as geopolitical tension in the Middle East escalated again, along with uncertainty over U.S.-Korea trade negotiations.
