The Bank of Korea has announced it will start implementing a new 'conditional interest rate forecast' model starting from the meeting of the Monetary Policy Committee on the 26th. This approach, akin to the dot plot used by the U.S. Federal Reserve, aims to clarify the central bank's monetary policy direction by presenting a quantitative forecast of interest rates. This change follows a review of a 1.5-year pilot test and input from market and academic experts, leading to an extension of the forecasting timeline from 3 months to 6 months, thereby improving communication with economic actors.

The dot plot will consist of individual projections from the seven committee members, including the Bank of Korea's governor, who will indicate their expectations for the benchmark interest rate six months into the future. Each member will provide three estimates, resulting in a total of 21 different interest rate levels being published. This method allows for a clearer representation of the expected median and variation in interest rates, acknowledging the unique characteristics of Korea’s economy as a small open market, which is significantly affected by external uncertainties.

The introduction of the dot plot follows the Bank of Korea's earlier implementation of forward guidance in October 2022, which focused on a 3-month horizon. This new model of communication not only aims to enhance transparency concerning future monetary policy decisions but also seeks to better inform the market about the likelihood of potential monetary actions, such as rate hikes or cuts. The dot plot will be presented quarterly, during the bank's annual economic projections published in February, May, August, and November.