August Dot Plot: BOK Board Members' Conditional Rate Outlook for Six Months Ahead
Bank of Korea board members have signaled they see the policy rate moving higher than its current level within the next six months. With the base rate now at 3.00%, the dot plot showed a cluster of dots at 3.25% and 3.50%, reflecting expectations of further increases.
According to the "Board Members' Conditional Base Rate Outlook Six Months Ahead," released by the central bank on the 27th, 10 of the 21 dots submitted by board members were placed at 3.25%, the largest cluster. Six dots were placed at 3.50%, while five pointed to the current base rate of 3.00%. No dot indicated a rate below the current level.
Judged by the dot plot alone, a majority of board members have left open the possibility of at least one more increase. With 16 of the 21 dots pointing above the current rate, market participants say the likely terminal rate has effectively moved higher than previously expected.
The six dots at 3.50% stand out in particular. Given that the base rate typically moves in increments of 0.25 percentage point, the placement suggests that a path involving one or two additional increases is under serious consideration within the board.
The shift in the projected rate path is even clearer compared with the May dot plot. At that time, 10 dots were placed at 3.00%, seven at 2.75%, and two each at 2.50% and 3.25%. This time, 16 dots were concentrated at 3.25% or higher, moving the center of the rate outlook upward.
Behind the higher projections is stronger-than-expected economic momentum. Raising the base rate by 0.25 percentage point to 3.00% from 2.75% on the same day, the BOK said the domestic economy is sustaining higher-than-expected growth on the back of strong exports and a recovery in domestic demand.
The central bank also sharply raised its growth forecasts. It lifted its projection for this year's growth to 3.3% from the 2.6% forecast in May, and next year's to 2.9% from 2.1%. It judged that a strong semiconductor cycle is lifting exports and investment, while improving income conditions will broaden the recovery in consumption.
Price pressures also persisted. The BOK kept its forecast for this year's consumer inflation at 2.7% but raised its core inflation projection to 2.5%, above its previous forecast. The revision reflects the possibility of continued pass-through of cost pressures and demand-side price pressures stemming from the improving economy.
Market attention is now on whether the rate path will stop at 3.25% or extend to 3.50%. Analysts said that if growth enters the 3% range and core inflation pressures persist, the central bank's tightening stance is more likely to last longer than expected.
