Citi has confirmed its projection that the Bank of Korea will implement four 25 basis point increases to the policy rate, scheduled for July 2026, October 2026, January 2027 and April 2027, which would place the terminal rate at 3.5%.
The global bank also cautioned that the distribution of risks leans toward a faster tightening sequence than its baseline. Among the scenarios Citi highlights is the possibility of back-to-back rate increases in the second half of 2026 and a terminal rate that could rise as high as 4.0% if inflationary pressures persist or intensify.
Bank of Korea Governor Shin, according to Yonhap Infomax, has emphasized the importance of timely monetary tightening. Citi noted that Governor Shin may raise concerns about a higher-for-longer inflation path at the June 17 press conference, which will cover the review of inflation target operations.
In its assessment, Citi pointed to a structural mix of policy settings that would blunt some of the traditional transmission of rate increases. Specifically, the firm cited the combination of expansionary fiscal policy and a negative household debt-to-income gap trend as factors that imply a policy rate rise could have smaller effects on growth, inflation and financial imbalances than historical averages would suggest.
The bank's outlook preserves the explicit calendar of four quarter-point moves through April 2027 while also acknowledging more aggressive outcomes remain on the table. That nuance frames both the baseline projection and the upside risks that could prompt the Bank of Korea to act more quickly.
Market participants and policymakers will be watching the June 17 press conference for signals on how the central bank views the persistence of inflation and whether that assessment might shorten the time between successive hikes or lift the likely terminal rate.
Summary
Citi expects four 25 basis point Bank of Korea rate hikes from July 2026 to April 2027 to reach a 3.5% terminal rate. The firm warns risks tilt toward quicker tightening, including possible consecutive hikes in late 2026 and a terminal rate up to 4.0%. Governor Shin has stressed timely tightening and may address higher-for-longer inflation at a June 17 press briefing.
Implications
- Monetary policy trajectory: Baseline path of incremental tightening with explicit timing across four meetings.
- Risk management: Upside risks include a faster pace and a higher terminal rate.
- Policy transmission: Expansionary fiscal policy and a negative household debt-to-income gap trend may dampen the usual impact of rate increases on growth, inflation and financial stability.