Bond.az -- The Bank of Korea's decision to hold rates steady comes with a hawkish tilt, signaling potential hikes as soon as July, according to ING.
The central bank kept its benchmark rate at 2.5%, as expected, though two board members voted for a 25-bp increase. Governor Shin Hyun-song acknowledged a hike could have been justified but opted to wait for clarity on inflation and Middle East developments.
ING now sees a higher probability of two rate hikes in H2 2026, with a total of 75 bps of tightening expected in July, October, and early 2027.
The bank revised up its economic forecasts: GDP growth at 2.6% in 2026 and 2.1% in 2027, inflation at 2.7% and 2.3% respectively.
Policymakers expect above-potential growth over the next two years, raising inflation risks. Governor Shin indicated the output gap could turn positive next year.
Weak domestic demand and high household debt may limit the pace of hikes. ING sees the terminal rate at 3.25%.
Recent market volatility was attributed to Middle East tensions. The bank stands ready to intervene in FX markets if needed.
