DBS Group Research economist Ma Tieying anticipates that the Bank of Korea (BoK) will maintain its base rate at 2.50% during the upcoming May 28 meeting, citing recent data that support a steady policy stance in the near term [1]. However, DBS has revised its interest rate outlook, now projecting a single 25 basis point hike in the third quarter of 2026, which would bring the base rate to 2.75% [1]. This adjustment follows an earlier upgrade to the 2026 GDP and inflation forecasts by DBS [1].
The report highlights several factors influencing this outlook, including firmer inflation, rising producer price index (PPI), and increased inflation expectations [1]. Despite these inflationary pressures, the presence of K-shaped growth and sectoral weakness are seen as constraints that limit the scope for aggressive monetary tightening [1].
Looking ahead, DBS expects inflation to pick up more noticeably in May, with headline consumer price index (CPI) potentially reaching 3% and core CPI beginning to show some pass-through effects [1]. As second-round inflation pressures start to build, the BoK is expected to adopt a more vigilant stance in the coming months [1].
No immediate market reaction or analyst opinions beyond the DBS outlook are discussed in the article.
CONCLUSION
DBS forecasts that the Bank of Korea will keep rates steady at its May meeting but sees a rising likelihood of a rate hike in Q3 2026 due to mounting inflation pressures. The central bank is expected to remain cautious, balancing inflation risks against sectoral economic weaknesses.