BOK holds rate at 3%, leaves door open to November hike

The Bank of Korea held its benchmark interest rate steady at 3 percent on Thursday, maintaining its tightening stance while assessing the effects of back-to-back rate hikes in July and August.

Attention is now turning to whether the BOK will raise rates again in November, with persistent inflation, stronger-than-expected growth, and rising housing prices supporting further tightening.

The BOK raised rates in July for the first time in three and a half years and followed with another hike in August, citing strong semiconductor exports and inflationary pressures stemming from the war in the Middle East.

Inflation remains above the BOK’s 2 percent target. Consumer prices rose 2.6 percent year over year in April, 3.1 percent in May and 3.2 percent in June, before fluctuating between 2.8 percent and 3.1 percent from July through September. High international oil prices are expected to keep inflation near 3 percent in October.

BOK Governor Shin Hyun-song has said the central bank will maintain its policy response until it is confident inflation is converging toward its target.

Growth has also strengthened, giving the central bank less reason to ease monetary conditions.

Real gross domestic product (GDP) expanded 1.8 percent in the first quarter after contracting 0.1 percent in the fourth quarter of last year, then grew 0.6 percent in the second quarter, exceeding expectations.

Korea’s current account surplus reached $279.2 billion in January-August, more than four times the level a year earlier.

In its August economic outlook, the BOK raised its full-year growth forecast to 3.3 percent from 2.6 percent, with growth potentially reaching 3.6 percent or higher under an optimistic scenario. Continued strength in semiconductor exports could prompt another upward revision in November, analysts say.

Housing prices and household borrowing are adding to the challenges facing policymakers.

Despite successive government measures to cool the property market, prices have continued to rise sharply in parts of the Seoul metropolitan area, particularly for lower- and mid-priced homes in outlying Seoul districts and southern Gyeonggi Province.

Household lending at major commercial banks, which declined in September, has risen again this month, while unsecured personal loans have also increased amid heightened stock market volatility.

Interest rate decisions by other major central banks are another consideration.

The U.S. Federal Reserve raised its benchmark rate last month to a range of 3.75 percent to 4 percent. The Fed is widely expected to hold rates steady at its October 27-28 Federal Open Market Committee (FOMC) meeting, although another increase before year-end remains possible.

The won’s recent strength could ease some pressure for further tightening. The won-dollar exchange rate fell to an intraday low of 1,322.8 won per dollar on Wednesday, partly on dollar sales by exporters, its lowest level since October 2, 2024, when it touched 1,317.1 won.

Observers noted that the BOK must also weigh the cost of higher rates for vulnerable borrowers. In a financial stability report last month, the central bank estimated that a 0.25-percentage-point rate increase would add about 3.3 trillion won to household interest expenses and 3.6 trillion won to business interest expenses.

Governor Shin acknowledged the strain higher rates would place on vulnerable borrowers last week, while Monetary Policy Board member Hwang Kun-il cited widening economic polarization and risks to vulnerable sectors when dissenting in favor of a rate freeze in August.

Markets widely expect the BOK to raise rates again as early as November. The preliminary estimate of third-quarter GDP growth, due October 27, and October consumer price data, scheduled for release on November 2, are expected to help shape the decision.

Park Jeong-woo, an economist at Nomura Securities Co., said another rate hike appeared necessary, as inflation remained high and the property market had yet to stabilize.

The BOK’s final monetary policy meeting of the year is scheduled for November 26.