South Korea: Modest tightening prospects – DBS

DBS Group Research economist Ma Tieying expects the Bank of Korea (BoK) to keep its base rate at 2.50% at the May 28 meeting, but now projects a single 25 bps hike in 3Q 2026 to 2.75%. The report cites firmer inflation, rising PPI and inflation expectations, but also K‑shaped growth and sectoral weakness as constraints on aggressive tightening.

DBS flags one 3Q rate hike

"Following our earlier upgrade to 2026 GDP and inflation forecasts, we now also revise our interest rate outlook, calling for one 25bps hike in 3Q."

"Recent data support the case for the Bank of Korea to keep the base rate unchanged at 2.50% at the May 28 meeting."

"Looking ahead, we see a rising likelihood of a 25bps rate hike in 3Q, which would bring the base rate to 2.75%."

"Inflation is expected to pick up more noticeably in May, with headline CPI potentially reaching 3% and core CPI beginning to reflect some pass-through."

"As second-round inflation pressures start to build, the BOK is likely to adopt a more vigilant stance in the coming months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)