Citi said it cannot fully rule out the possibility that the Bank of Korea (BOK) will opt for a preemptive rate hike at its May 28 monetary policy board meeting, should the central bank revise up its 2026 economic projections.
In an updated assessment, Citi now assumes the median of the forward six-month conditional policy rate will be adjusted to a range of 2.75% to 3.00%, up from its previous working assumption of 2.50%. The firm had earlier identified the May 28 meeting as the earliest juncture at which monetary policy board members could signal a tightening by making a hawkish change to that forward-looking projection.
Citi expects the Bank of Korea to lift its 2026 gross domestic product growth forecast to between 2.4% and 2.6%, from an earlier projection of 2.0%. The firm says this upward revision would be supported by a robust first-quarter 2026 GDP print alongside fiscal stimulus measures.
Alongside growth, Citi anticipates a higher inflation outlook from the BOK for 2026. The bank now projects the central bank will raise its consumer price index forecast to a band of 2.6% to 2.8%, up from the previous 2.2% figure. Citi notes the prior inflation projection had built in an assumption of Brent crude oil at $64 per barrel and a negative output gap.
These assessments come as the Bank of Korea prepares to update its official economic projections at the upcoming monetary policy board meeting on May 28. Citi’s revised assumptions center on what the firm describes as the most likely adjustments the BOK could make to its forward six-month conditional policy rate and its macro forecasts for 2026.
Context and implications
Citi’s recalibration focuses on the forward six-month conditional policy rate projection as the primary channel through which the BOK could signal a shift in policy stance at the May meeting. The firm highlights two main drivers behind its expected upward revisions to the BOK’s 2026 forecasts: a stronger-than-anticipated first-quarter GDP outcome for 2026 and the impact of fiscal stimulus measures on demand.
The previous set of BOK forecasts, Citi notes, assumed lower oil prices and slack in the economy. If those assumptions are replaced with stronger growth and a narrower output gap, the case for a higher inflation outlook and a correspondingly higher policy path becomes more plausible within the confines of the BOK’s own forecasting framework.
What remains uncertain
- Whether the Bank of Korea will formally adopt the upward revisions Citi anticipates when it publishes updated projections at the May 28 meeting.
- The extent to which any revised forecasts would translate into an actual policy-rate increase versus a change in forward guidance only.
- How external variables not embedded in the prior forecasts - such as oil prices or domestic slack - will evolve between now and the meeting.
All figures and expectations in this report reflect Citi’s assessment ahead of the BOK’s scheduled projection update; the central bank’s final decisions and published forecasts at the May 28 meeting will determine the official path forward.