Goldman Sachs expects two BOK rate hikes in H2

Goldman Sachs expects the Bank of Korea to raise its benchmark rate twice more in the second half of this year to 1.75 percent, and later continue hikes to 2.5 percent, according to a report published by the US bank Friday.

“We continue to expect the rate curve to steepen along with gradual monetary policy normalization,” the report said.

Korea continues to see elevated inflation but the risk is contained by moderating import prices, weakening housing prices, and measures to counter supply shocks, the report added, saying the annual average inflation this year would stand at 3 percent.

But Korea would feel pressure from an increasingly hawkish US Fed looking to lift the rate and cut the coronavirus pandemic support much earlier than expected, according to the report, which described the March presidential election as another factor affecting the BOK’s monetary policy.

The report said the pandemic could worsen but economic activity will not be as heavily affected as before, as the Korean government has already switched to a “living with COVID-19” strategy that aims to put as few curbs as possible with high vaccination levels.

Korea’s daily COVID-19 cases exceeded 27,443 for the first time Thursday midnight, driven by the omicron variant, but the government is seen reluctant to put stronger curbs.

By Choi Si-young (siyoungchoi@heraldcorp.com)