By Rahul Trivedi
BENGALURU, May 26 (Reuters) – South Korea’s central bank will keep its key policy rate unchanged at a review on Thursday, according to economists in a Reuters poll, and a majority of them now expect one or more rate hikes by end-December as the Iran war adds to inflationary pressures.
All except two of 32 economists polled by Reuters between May 19 and 25 forecast the Bank of Korea would keep its base rate at 2.50% on May 28. The two outliers forecast a rate rise.
More than 70%, or 21 of 29 respondents, predicted at least one rate hike by end-September, a sharp shift from last month’s survey, when only three of 30 economists expected a quarter-point hike.
That shift follows inflation breaching the central bank’s 2.0% target, with the April rate of 2.6% the highest in almost two years, as tensions in the Middle East have kept oil prices mostly above $100 a barrel for close to three months.
“The case for tightening is strengthening across multiple fronts,” said Krystal Tan, an economist at ANZ.
“Inflation is not only trending above target but appears poised to rise further, with expectations also continuing to edge upwards. This comes against a backdrop of persistent energy-driven price pressures and a weaker Korean won, which is adding to imported inflation risks.”
On Thursday, the BOK is also expected to revise up its gross domestic product growth estimate for this year from the 2.0% projected before the Iran war started, which economists said would further strengthen the case for rate hikes.
That expected growth upgrade would follow a surprisingly strong first-quarter expansion of 1.7% – the fastest in nearly six years – despite higher energy costs weighing on the global economy.
“Growth remains resilient on the back of a strong semiconductor export cycle, providing the central bank with sufficient buffer to begin tightening policy,” ANZ’s Tan said.
Most economists in the poll also expected the BOK to raise rates in the final quarter of 2026. Of the 29 economists who gave longer-term forecasts, 17 saw the base rate at 3.00% at the end of 2026, six saw it at 2.75% and another six had it unchanged at 2.50%.
(Other stories from Reuters global economic poll)
(Reporting by Rahul Trivedi; Polling by Pulkit Khanna and Veronica Khongwir in BENGALURU and Jihoon Lee in SEOUL; Editing by John Mair)
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