Bank of Korea's Monetary Policy Committee members have been meeting weekly after the July meeting, with bond market attention intensifying on whether committee sentiment is shifting. The committee and bond market have both reviewed two major indicators: Q2 growth data and July inflation figures. Growth continued in Q2 following explosive Q1 expansion, while inflation data showed core inflation rising further, supporting concerns about demand-side price pressures. Committee minutes released the previous day showed no clear dovish signals, and no opposition has emerged within the committee regarding the need for additional rate hikes.
August Committee Meeting Faces Potential Dissenting Opinions on Rate Hike Pace
While the committee shows unified support for additional rate hikes, questions arise about whether back-to-back increases are necessary. The Monetary Policy Committee operates as a consensus-based body where members may hold different views on macroeconomic variables and policy priorities.
Interest rate increases are placing growing burdens on households, corporations, and government. SME delinquency rates based on principal and interest overdue for one month or more have risen from 0.72% in December last year to 0.81% in March this year and 1.00% in May.
According to data submitted to Rep. Lee Jong-wook of the People Power Party by the Bank of Korea, a 0.25 percentage point base rate increase adds 3.2 trillion won in annual financial costs to corporations.
The August meeting differs from typical sessions as it includes dot plot disclosures. If a committee member casts a dissenting vote for a freeze in the August meeting but signals additional rate hike necessity in the dot plot, the significance of the dovish action could be diluted.
November Dot Plot Expected to Reveal Committee Members' Terminal Rate Assessments
The November dot plot release is expected to provide the most interesting insights, as committee members' terminal base rate assessments may become clearer by that time.
Even among hawkish-leaning members, priorities differ based on whether emphasis is placed on financial stability or inflation. If inflation concerns ease, policy focus could shift toward financial stability, potentially leading members sensitive to that factor to voice more hawkish positions than the committee overall.
Regarding growth factors, differing opinions from the Bank of Korea executive branch may emerge within the committee. One committee member who cast a dissenting opinion for a rate hike in May explained: "Semiconductors are a capital-intensive industry with a low employment multiplier, so the trickle-down effect of a semiconductor boom spreading to the overall economy is smaller compared to other industries. Particularly given the industry's characteristic of needing to reinvest a significant portion of profits and the reality that a considerable portion of investment must be made overseas, the effect of semiconductor exports leading to domestic demand stimulation appears somewhat limited."
Bond market participants also question how much demand-side price pressure improved terms of trade from strong semiconductor exports will exert domestically.
One macro expert stated: "The most certain impact of strong semiconductor exports would be facility investment, but large quantities of equipment must be brought in from overseas. We must also consider the possibility that households with expanded consumption capacity through performance bonuses may increase overseas travel and consumption of imported cars and foreign apparel."
Another macro expert noted: "How much profit corporations earn overseas and bring back domestically is also a point to confirm. Whether the government's fiscal policy proceeds toward increasing investment rather than consumption could also be a variable."
FAQ
Why is the Bank of Korea Monetary Policy Committee meeting weekly after the July session?
The committee has agenda items to process beyond monetary policy direction. The meetings have drawn increased bond market attention as the rate hike cycle has transformed each session into a "living meeting" where participants scrutinize whether committee sentiment is shifting.
What data supports the case for additional Bank of Korea rate hikes?
Q2 growth data showed sustained expansion following explosive Q1 growth, and July inflation figures revealed core inflation rising further, supporting concerns about demand-side price pressures. Committee minutes released the previous day contained no clear dovish signals.
How do interest rate increases affect Korean corporations' financial costs?
According to data submitted to Rep. Lee Jong-wook by the Bank of Korea, a 0.25 percentage point base rate increase adds 3.2 trillion won in annual financial costs to corporations. SME delinquency rates have risen from 0.72% in December last year to 1.00% in May this year.
