The market outlook is tight ahead of the Bank of Korea’s Monetary Policy Committee’s decision on the..

Citi, DBS, MUFG forecast to raise 0.25%p further
Domestic bond expert 79% “Frozen base rate in August”

사진 확대 A loan window notice is posted at KB Kookmin Bank in Yeouido, Seoul. [Reporter Kim Jaehoon]

The market outlook is tight ahead of the Bank of Korea’s Monetary Policy Committee’s decision on the benchmark interest rate on the 27th.

Overseas investment banks (IBs) are weighing the possibility of a “continuous increase” in their key interest rates following last month, based on stronger-than-expected growth and price pressures. On the other hand, about 8 out of 10 experts in the domestic bond market predicted that the current rate will be frozen at 2.75% per year in consideration of the effect of last month’s rate hike and the recent stabilization of the exchange rate. The direction of interest rates is expected to have a significant impact on loan interest rates and household interest burdens.

According to the financial sector on the 26th, Citigroup is expected to raise its benchmark interest rate from the current 2.75% per year to 3.00%. In a report on the 12th, Citi predicted that the Bank of Korea will raise its key interest rate by 0.25 percentage points this month and then make the same increase in November and February next year, respectively. In this case, the base rate increases to 3.50% per year.

It also left open the possibility that the intensity of austerity will be stronger than expected. Citi predicted that the benchmark interest rate could rise to 3.75% per year if the rate of increase is accelerated depending on inflation and economic conditions.

DBS (Singapore Development Bank), the largest state-run bank, expects to raise its key interest rate by another 0.25 percentage point in the fourth quarter of this year to reach 3.25 percent at the end of the year and maintain this level until the end of next year.

Japan’s Mitsubishi UFJ Financial Group (MUFG) also weighed in on a “continuous increase.” MUFG recently predicted that the Bank of Korea will raise its key interest rate by 0.25 percentage points this month following last month.

Core prices, semiconductor exports and memory prices, and solid housing markets were cited as the basis for further increases. It is analyzed that the BOK’s hawkish monetary policy stance will also serve as a supporting factor for the won’s value.

What’s noticeable is that MUFG changed its interest rate outlook in just a month. Immediately after the Monetary Policy Committee last month, it was expected to freeze interest rates in August and raise them further in the fourth quarter, but the timing of the recent hike was moved forward to this month.

사진 확대 [AI Gemini creation infographic]

On the other hand, in the domestic bond market, the prospect of freezing the benchmark interest rate is dominant.

Eight out of 10 bond market experts predicted that the benchmark interest rate would be tied at the current level.

According to the “September 2026 Bond Market Indicator (BMSI)” recently released by the Korea Financial Investment Association, 79% of those surveyed expected the benchmark interest rate to be frozen at the Monetary Policy Committee this month. Only 20% of the respondents predicted an increase. The atmosphere in the market has changed significantly in just a month.

In a survey conducted ahead of the Monetary Policy Committee in July, 66 percent of respondents expected a hike in the benchmark interest rate, far ahead of the freeze (34 percent). However, in this survey, the outlook for a freeze rose to 79%, and the trend turned the other way around.

An official from the Korea Financial Investment Association said, “There are simultaneous factors such as rising growth forecasts, inflationary burden, and household debt, as well as freezing factors such as falling exchange rates and rising market interest rates.”