Key Takeaways
- • The Bank of Korea's Monetary Policy Board held its benchmark rate steady at 3.00% on October 22, in line with market expectations; 12 of 13 economists surveyed by The Asia Business Daily (92.3%) had forecast a hold.
- • The pause follows back-to-back preemptive hikes in July and August, giving the central bank room to assess effects on vulnerable borrowers while it maintains a tightening stance.
- • Experts point to a further preemptive hike in November, citing strong semiconductor-led growth, upward inflation pressure, and a 1.00 percentage point rate gap with the U.S. (upper bound 4.00%).
- • Korea's current account surplus reached $279.2 billion in the first eight months of the year, four times the $69.67 billion recorded a year earlier.
- • Household lending is rising again and Seoul apartment prices have risen for 88 consecutive weeks, keeping financial-stability concerns at the forefront of policy.
Summary
The Bank of Korea held its benchmark interest rate at 3.00% per annum at its Monetary Policy Board meeting on October 22 at its Jung-gu, Seoul headquarters, according to The Asia Business Daily. The decision matched market expectations, and the Board said it will maintain its monetary tightening stance while adjusting the pace and assessing the effects of the July and August hikes. The pause was characterized as a breather: those hikes were preemptive measures meant to address problems before they became harder to contain, and the central bank is now monitoring impacts on vulnerable borrowers. A decline in the won-dollar exchange rate to around KRW 1,320 per dollar also weakened the case for an immediate hike. On October 21 the won traded as strong as KRW 1,322.8 intraday, its lowest level since October 2, 2024.
The tightening cycle is widely expected to resume. Experts cited in the report point to November for another preemptive hike, driven by strong growth from semiconductor exports and upward inflation pressure. The narrowing rate differential with the United States, where the policy rate upper bound is 4.00%, was also noted. Finance Minister Lee Hyeongil said at a recent briefing that real GDP growth this year could reach 3.6%, and eight of 11 respondents in the Asia Business Daily survey forecast 3.5% to 4.0%, above the Bank's August forecast of 3.3%. Experts expect the Bank to raise its growth forecast in its revised outlook next month. Nominal GDP rose 26.4% year on year in the second quarter, the largest increase in 47 years.
Inflation risks remain elevated. Persistently high oil prices linked to the prolonged Middle East war, with Brent approaching $112 a barrel on October 20 at a five-month high on ICE, add cost pressure, while semiconductor-driven income gains feed demand-side inflation. The Bank said on October 2 that consumer prices were expected to keep rising sharply, particularly core inflation. On financial stability, the Korea Real Estate Board reports Seoul apartment prices have risen for 88 consecutive weeks, though prices have begun to fall in the three Gangnam districts while increases accelerate in outlying Seoul and southern Gyeonggi Province. Household loans at the five major banks totaled KRW 783.5983 trillion as of October 15, up KRW 2.7643 trillion from the prior month-end, after slowing the previous month.
Experts generally forecast the terminal rate at 3.50%, 25 basis points above the current level, and some did not rule out 4.00%. Cho Yonggu, a researcher at Shinyoung Securities, said the Bank would likely emphasize another November hike while relying on fiscal policy for targeted support to vulnerable sectors.
The tightening cycle is widely expected to resume. Experts cited in the report point to November for another preemptive hike, driven by strong growth from semiconductor exports and upward inflation pressure. The narrowing rate differential with the United States, where the policy rate upper bound is 4.00%, was also noted. Finance Minister Lee Hyeongil said at a recent briefing that real GDP growth this year could reach 3.6%, and eight of 11 respondents in the Asia Business Daily survey forecast 3.5% to 4.0%, above the Bank's August forecast of 3.3%. Experts expect the Bank to raise its growth forecast in its revised outlook next month. Nominal GDP rose 26.4% year on year in the second quarter, the largest increase in 47 years.
Inflation risks remain elevated. Persistently high oil prices linked to the prolonged Middle East war, with Brent approaching $112 a barrel on October 20 at a five-month high on ICE, add cost pressure, while semiconductor-driven income gains feed demand-side inflation. The Bank said on October 2 that consumer prices were expected to keep rising sharply, particularly core inflation. On financial stability, the Korea Real Estate Board reports Seoul apartment prices have risen for 88 consecutive weeks, though prices have begun to fall in the three Gangnam districts while increases accelerate in outlying Seoul and southern Gyeonggi Province. Household loans at the five major banks totaled KRW 783.5983 trillion as of October 15, up KRW 2.7643 trillion from the prior month-end, after slowing the previous month.
Experts generally forecast the terminal rate at 3.50%, 25 basis points above the current level, and some did not rule out 4.00%. Cho Yonggu, a researcher at Shinyoung Securities, said the Bank would likely emphasize another November hike while relying on fiscal policy for targeted support to vulnerable sectors.
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