South Korea's Central Bank May Raise Rates to 3% Amid Rising Oil Prices, Citigroup Says

Citigroup has indicated that South Korea's central bank might increase its policy rate to 3% this year due to surging global oil prices driving inflation. According to Jin10, Citigroup economist Jin-Wook Kim stated in a report that the Bank of Korea is expected to implement two rate hikes, each by 25 basis points, one in July and another in October, bringing the benchmark rate close to 3%. These actions would mark a resumption of the tightening cycle after a prolonged pause, as price pressures have proven more persistent than previously anticipated. Brent crude oil prices, affected by disruptions related to the Iran conflict, may rise to $110-$120 per barrel in the near term before declining later this year. This price surge, equivalent to a potential 20% increase over the already high oil prices in the next 12 months, is expected to impact inflation more significantly than economic growth. The asymmetric impact of rising oil prices on inflation will likely prompt the Bank of Korea to adopt a more hawkish stance, especially considering historically loose financial conditions.