Citi Forecasts Bank of Korea 25bp Rate Hike in August After Strong Q2 Growth

Citi forecasts the Bank of Korea will raise its benchmark interest rate by 25 basis points in August, following a July hike, according to a report released July 23 by Citi economist Kim Jin-wook. The projection follows strong second-quarter GDP and GDI growth data. Kim cited historical precedent from BOK Governor Shin Hyun-song's 2022 remarks at the Bank for International Settlements, noting that front-loaded rate increases have frequently led to soft landings.

Citi Projects 20.7% Nominal Growth Rate for This Year

Citi raised its nominal growth rate forecast for this year to 20.7%, up from a previous estimate of 15.5%. If realized, this would mark the strongest growth since 1991. Real economic growth projections remain unchanged at 3.7% for this year and 3.0% for next year.

July CPI Forecast Revised Down to 2.7%, August Rebound Expected

Citi revised its July CPI headline inflation forecast down to 2.7% from 2.9%, reflecting retail gasoline prices. The firm projects August headline CPI will rise 3.2% year-over-year, with core CPI increasing 3.3%.

Citi Sets Terminal Rate at 3.50% After Three Additional Hikes

Citi expects the Bank of Korea to implement additional rate hikes in August and November this year, and in February next year, bringing the terminal rate for this tightening cycle to 3.50%.

FAQ

What did Citi forecast for Bank of Korea rate policy in August?

Citi forecasts the Bank of Korea will raise its benchmark interest rate by 25 basis points in August, following a July hike, based on strong second-quarter GDP and GDI growth data released July 23.

Why did Citi raise its nominal growth forecast for this year?

Citi raised its nominal growth rate forecast for this year to 20.7% from 15.5%, which would represent the strongest growth since 1991 if realized. The revision follows second-quarter economic data.