Bank of Korea minutes show possible policy rift on back-to-back rate hikes

By Reuters News

By Cynthia Kim

SEOUL, Sept 15 (Reuters) - The Bank of Korea's decision to carry out back-to-back interest rate hikes in August was more contentious than the headline vote suggested, meeting minutes released on Tuesday showed, signaling divisions that could slow the future tightening pace.

The BOK on August 27 raised its benchmark interest rate KROCRT=ECI by a quarter percentage point to 3.00%, delivering a second straight increase as inflation stays above target and financial stability risks persist.

Dissenter Hwang Kun-il argued that rates should remain unchanged to better manage rising delinquency trends and support economic growth, suggesting that a stronger won against the U.S. dollar gave the central bank room to assess the lagged impact of earlier tightening.

"We need to consider the changes in expectations regarding the future monetary policy path that may appear with higher rates, as well as the deepening polarisation and the impact on vulnerable sectors," Hwang said on August 27, according to the minutes.

"Above all, amid the recent downward-trend of the (dollar-won) exchange rate, we need to further confirm and monitor whether the inflationary pressure driven by the demand side will remain structural."

The seven-member board voted 6-1 for the decision. The minutes only identify dissenting voters.

The median expectation of economists is now for one more rate hike in the first quarter of 2027, followed by a pause through to at least the end of next year.

The split decision is likely to increase investor scrutiny on subsequent BOK communication for indications on whether inflation hawks or stability doves carry greater influence among policymakers heading into the fourth quarter.

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