Oh Geon-young forecasts rate hikes through H1 next year, terminal rate at 3.5%

With the Bank of Korea embarking on a full-scale cycle of benchmark interest rate hikes, Oh Geon-young, head of Shinhan Premier Pathfinder and a widely followed macroeconomics commentator, expects monetary tightening to continue through the first half of next year. The key variables he is watching are the United States and the real estate market.

Oh made the remarks in an interview ahead of his asset management lecture at Herald Money Festa 2026, a two-day event opening Oct. 2 at Dongdaemun Design Plaza in Seoul. "The market consensus on how long tightening will last points to the first half of next year," he said. "The market expects the Bank of Korea to raise the benchmark interest rate in February and May next year, bringing it to a terminal rate of 3.5 percent annually." South Korea's current benchmark interest rate stands at 3.00 percent per year.

The biggest wildcard is the US market. If the Federal Reserve moves to raise rates further, the Bank of Korea's tightening cycle would inevitably be extended as well.

"The Bank of Korea's rate hikes carry an implicit goal of stabilizing the exchange rate, but if the US raises rates further than it already has, controlling the exchange rate becomes much harder," Oh said. "If the US raises rates, the Bank of Korea will have no choice but to consider additional hikes of its own," he added.

The real estate market is another variable. Should volatility in that market intensify, the Bank of Korea could find itself weighing unplanned additional hikes. "Prices are important, but financial stability is no less so — that is the Bank of Korea's position," Oh said. "Real estate prices are ultimately tied to household debt."

Oh is also keeping a close eye on the recent semiconductor boom. "When broad-based wage increases emerge, they can feed through to inflationary pressure with a lag," he said. "If a global surge in energy prices and wage-driven inflation converge, we could see a somewhat stronger inflationary environment."

He added that the Bank of Korea appears to see a need for preemptive action when weighing growth against inflation. "The logic is that if you don't get a preventive shot now, you'll need several later," he said.

On the exchange rate, Oh expressed doubt about how long the won's solo rally can last. "The won's strength cannot go on indefinitely," he said. "The dollar is too stable right now, and we ultimately need to keep a close eye on the monetary conditions of countries that compete with us in exports — China and Japan in particular."

In a volatile market environment like the current one, holding cash is more important than anything else, Oh said.

"Cash gives you the opportunity to buy assets such as shares more cheaply when prices fall," he said. "When downside volatility increases, cash can hedge a certain degree of risk."

"People tend to view cash merely as a safe asset without giving it much thought, but in a market like this, it is important to build a portfolio that generates a steady level of cash flow," he said. "Investors should pay attention to assets that put cash in hand — things like dividend stocks and bonds," he added.

He also argued that investors should keep an eye on assets that currently offer somewhat less investment appeal, taking a longer-term view.

"A lot of people think bonds are unattractive right now because interest rates are rising, but rates can come down again someday," Oh said. "From the perspective of building a portfolio with a long time horizon, it makes sense to gradually accumulate bonds."

"Supply chain anxieties will ultimately raise the importance of energy even further," he said, advising investors to gradually build exposure to energy-related portfolios, including nuclear power.