BOK delivers back-to-back rate hikes as price pressures persist

The Bank of Korea (BOK) raised its benchmark interest rate by a quarter percentage point to 3.00% on Thursday, as anticipated. This marked the second consecutive rate increase, driven by persistent inflation surpassing the target and lingering concerns over financial stability. The seven-member monetary policy board voted to raise the seven-day repurchase rate to the highest level since February 2025, a move that 18 out of 35 economists surveyed by Reuters had predicted.

The BOK also revised its growth estimate for the year upward to 3.3%, from the 2.6% forecasted in July, while keeping the inflation projection unchanged at 2.7%. Economists now anticipate a further rate hike in the first quarter of 2027 and a hold through the end of the following year, as policymakers focus on managing financial stability due to an overheating housing market and strong growth feeding into inflation.

Daishin Securities economist Kong Dong-rak expects the terminal rate to reach 3.50%, higher than his previous projection of 3.25%, as the economy may expand as much as 3.5% this year. South Korean policy-sensitive treasury bond futures declined immediately after the decision, with yields reflecting a market preparing for a prolonged tightening campaign.

The upcoming six-month dot plot, which will be updated for the first time since May, will provide insights into the terminal rate and whether the tightening cycle extends into the next year. Governor Shin Hyun-song will deliver a news conference at 0210 GMT.