The Bank of Korea Monetary Policy Board on the 28th left the base rate unchanged at 2.50% per year, but sent a strong signal indicating a hike in the second half of this year. There is analysis that the Bank of Korea has entered a rate-hike cycle.

This is interpreted as reflecting a growing consensus that conditions for monetary tightening are taking shape, as inflation concerns are mounting due to the aftermath of the Middle East war while growth prospects are improving significantly on semiconductor strength.

The decision to hold was not unanimous among the seven board members, as there were two minority opinions. Members Jang Yong-seong and Yoo Sang-dae argued that the base rate should be raised to 2.75% per year. Since last July the Bank of Korea has kept the base rate unchanged for eight consecutive meetings, and this is the first time that minority opinions for a hike have appeared.

Member Yoo Sang-dae, a deputy governor of the Bank of Korea, said at a press briefing early this month, citing the improvement in the economy and concerns about rising prices, “It is time to consider a rate increase”.

The hawkish tilt is more clearly revealed in the dot plot where board members forecast the base rate six months ahead. The dot plot consists of 21 dots, three for each of the seven members, reflecting their individual expectations for the base rate in six months.

In the dot plot released that day, only two dots were at the current rate of 2.5% per year. There were no dots at a rate below the current level. Seven were at 2.75%, ten at 3.0%, and two even at 3.25%.

This contrasts with the February board dot plot, where most dots were at 2.5%.

If the dot plot is taken at face value, it can be interpreted as leaving open the possibility of two rate hikes by the board in the second half, or a big step (a 0.5 percentage point increase in the base rate).