BOK delivers back-to-back rate hikes, remains hawkish

The Bank of Korea (BOK) raised its benchmark interest rate by a quarter percentage point to 3.00%, marking the second consecutive increase. The decision was made despite inflation remaining above the target, and financial stability risks persisting. The move was anticipated by economists, with 18 out of 35 surveyed predicting the increase.

The BOK also revised up its growth estimate for the year to 3.3% from the previously projected 2.6%. The central bank maintains its 2.7% inflation forecast for the year. Analysts expect one more rate hike in the first quarter of 2027, followed by a hold through at least the end of the next year. The economy is strong enough to absorb the increase, but further hikes are less clear due to a strengthening currency, easing inflation, and weak domestic demand.

The BOK's hawkish stance aligns with a global central bank environment characterized by division, with the Federal Reserve maintaining restrictive rates and the Bank of Japan adopting a cautious approach.