BOK Seen Taking Breather to Assess Impact of Back-to-Back Hikes

The Bank of Korea is expected to leave interest rates unchanged this week as policymakers assess the impact of rare back-to-back hikes, while keeping further increases in play as a semiconductor boom powers growth and keeps inflation elevated.

All 24 economists surveyed by Bloomberg expect the central bank to hold its benchmark rate at 3% on Thursday. The BOK raised rates by a quarter percentage point each in July and August, delivering its first consecutive hikes in more than three years.

A pause would be consistent with Governor Shin Hyun Song’s preference for a gradual pace of tightening. After the August increase, he said policymakers need to evaluate how the economy was responding to higher rates. More recently, he has stressed that while rate hikes come with pain, acting preemptively can help anchor markets and ultimately reduce the economic costs.

Still, Shin made clear that the tightening cycle has further to run.

“We will keep a restrictive stance of monetary policy until we’re confident that inflation will converge to our target, and in a timely way,” he said at an International Monetary Fund event on Oct. 13.

Headline inflation slowed to 2.9% from 3.1% in September, while core inflation, excluding volatile food and energy, eased to 2.8% from 3.4%. Both remained above the BOK’s 2% target, and Shin has warned that lingering cost pressures and stronger demand will keep inflation elevated for some time.

With a hold widely anticipated, investors will focus on any dissent and what Shin said about the timing and pace of further tightening. The board’s six-month rate projection in August had a median of 3.25%, implying another quarter-point hike. But the strength of the chip cycle is increasingly raising the question about whether policymakers may ultimately need to go further.

Citigroup Inc. expects the BOK to signal further tightening after holding rates Thursday, potentially with one board member dissenting in favor of an immediate hike. Citi economist Jin-Wook Kim forecasts quarter-point increases in November and February, taking the terminal rate to 3.5% in the current cycle.

Nomura Holdings also sees rates reaching 3.5% through increases at those two meetings. The economy’s headline strength should keep the BOK inclined toward further tightening, though weak domestic demand and a stronger won are likely to contain price pressures and limit how far rates rise, Jeong-Woo Park wrote in a report.

What Bloomberg Economist Says... “The Bank of Korea’s tightening cycle has further to run, but we expect a hawkish pause on Oct. 22. The bigger question is whether Governor Shin Hyun Song sees the equity rout and growing uncertainty over global AI investment as a temporary correction or a new downside risk to growth. That judgment will be crucial for our November hike and 3.5% terminal-rate calls.” — Hyosung Kwon, economist Click here for the full report.

Robust exports also give policymakers little reason to abandon their tightening bias. Total shipments reached a record $120.9 billion in September as semiconductor exports surged 263%.

The IMF raised its 2026 growth forecast for South Korea to 3.3% last week, matching the BOK’s August projection. Citi predicts an even stronger 3.8% expansion and expects policymakers to acknowledge upside risks to growth ahead of the next forecast update in November.

See Also: JPMorgan Sees Upside to Its Already Hawkish 3.75% BOK Rate Call

Housing remains another reason for policymakers to stay cautious. Apartment prices in Seoul have risen for 88 consecutive weeks even as growth in bank lending to households has slowed, keeping property-market risks firmly on the BOK’s radar.

The won’s appreciation also offers another reason to proceed gradually by helping curb imported inflation. Shin said last week that further currency gains would be desirable, highlighting stronger household purchasing power and benefits for sectors that have lagged behind the chip-led expansion.

What to watch for

The rate decision is expected around 9:50 a.m. Seoul time Thursday, with a policy statement due by 10:30 a.m.Governor Shin’s press briefing is scheduled to begin around 11:10 a.m.Any dissent in favor of a hike would signal pressure to resume tightening as soon as November.Shin’s assessment of growth and inflation will offer clues to potential forecast revisions in November.Any discussion of how restrictive policy needs to become will be scrutinized for signs that rates could rise beyond the August guidance.