The Bank of Korea faces mounting pressure for monetary tightening after a spike in global oil prices triggered by Middle East conflict. Markets increasingly expect the benchmark rate to reach 3 percent by year-end.
Bank of Korea Governor Shin Hyun-song will chair his first Monetary Policy Board meeting on Thursday since taking office in April. Markets expect an unchanged decision at 2.50 percent but watch for signals of future tightening.
The central bank has held the benchmark rate steady for seven straight meetings after cutting it to 2.50 percent in May last year. The producer price index rose 2.5 percent in April from the prior month, the steepest increase since February 1998.
Kim Jin-wook, chief economist at Citibank Korea, said the base case is an evidently hawkish hold at the 2.50 percent policy rate. Senior Deputy Governor Ryoo Sang-dai said on May 4 that growth above 2 percent and inflation possibly exceeding 2.2 percent mean it is time to consider rate hikes.
