As U.S. Treasury yields rise and inflation worries persist, markets are focusing on the possibility of a shift in the Bank of Korea’s monetary policy stance under Governor Shin Hyun-sung (신현성). The Monetary Policy Board meeting on the 28th, the first since Shin took office, is expected to hold rates. Expectations are growing that hawkish signals hinting at a policy-rate hike later this year will strengthen.

According to the financial investment industry on Monday, major domestic brokerages expect the board to keep the policy rate at the current 2.50 percent. They also forecast a high chance that a minority opinion calling for a hike will emerge.

Shinhan Investment Corp said in a report on May 22 it expects one board member to issue a dissenting opinion for a hike. Chan-hee Kim (김찬희), a researcher at Shinhan Investment Corp, said most dots in the six-month dot plot are likely to cluster around one hike to 2.75 percent, forming the median. He also said there is a possibility that more dots will be placed on two hikes to 3.00 percent than on a hold at 2.50 percent.

Korea Investment & Securities also raised the possibility of a dissenting opinion for a hike alongside a hold decision at this meeting. Ji-wook Choi (최지욱), a researcher at Korea Investment & Securities, said vigilance within the board could strengthen when considering the possibility of upward revisions to gross domestic product and consumer price index forecasts, exchange-rate volatility, and a widening rise in real estate prices.

The market also sees recent rate moves as reflecting tightening concerns. Since April 10, yields on three-year and 10-year government bonds have risen by more than 30 basis points and 40 basis points, respectively, and are now moving in the 3.7 percent range and 4.1 percent range.

Analysts cited a combination of factors, including concerns about high oil prices due to stalled talks between the United States and Iran, and expectations for a semiconductor-led recovery after strong first-quarter GDP. They also pointed to rising global long-term rates driven by fiscal concerns in major countries such as Britain and Japan, which they said has added to pressure on the domestic bond market.

Some in the market are even discussing the possibility of a policy-rate hike within the year. Korea Investment & Securities said the growth outlook for this year could be presented at the mid-2 percent level as strength in exports and private consumption continues.

Choi said international oil prices are holding at high levels while the Strait of Hormuz is not fully open. He also said inflationary pressure has gradually expanded since the April policy meeting.

Even so, brokerages see limited chances that the central bank will move straight to a rate hike at this meeting. They said it is likely to maintain a hold stance first, considering it is the first meeting under the new governor and the burden from the recent surge in government bond yields.

Kim said policymakers’ recent communication has focused on signaling hikes rather than pre-emptive hikes. He added that the burden of starting a tightening cycle from the first meeting chaired by the new governor should also be considered.

Korea Investment & Securities also forecast the central bank may deliver a message with a less hawkish tone than expected. It cited the government’s remark that the pace of the rise in government bond yields is excessive and its signal of a possible cut in the volume of government bond issuance next month, saying the central bank could also be mindful of market shocks.

Choi said a hawkish dot plot and communication are possible when looking only at the growth and inflation path. He added that the central bank may partially adjust its hawkish tone given that fiscal authorities have recently mentioned the burden of rising rates.

The market is also focusing on shifts in the board’s internal mood. Former board member Sung-hwan Shin (신성환), previously seen as a leading dove, signaled a more hawkish stance by saying at a farewell press meeting that price stability should carry more weight if inflation and growth factors conflict. Newly appointed board member Jin-il Kim (김진일) also said at his inauguration ceremony that a slightly higher interest rate is needed, even as an insurance measure, prompting assessments that tightening inclinations have strengthened.

Korea Investment & Securities in particular said it sees a high chance that board member Yong-sung Jang (장용성) will issue a dissenting opinion for a hike. It also said if the number of members favoring a hike increases to two or more, the market could price in the possibility of a July hike rather than August.

Caution also exists over the possibility of a prolonged tightening cycle. Shinhan Investment Corp forecast the central bank is likely to present its 2027 growth forecast at around 2 percent or lower. It expects consumer inflation to slow to the low-2 percent level next year, reflecting stabilising international oil prices.

Kim said the current phase is closer to a transitional period in which vigilance over tightening strengthens rather than an actual rate hike. He added that it is unlikely that concerns in some quarters about prolonged tightening will immediately become reality.