The Bank of Korea delivered its second consecutive rate hike on Thursday, lifting the benchmark seven-day repurchase rate by 25 basis points to 3.00%, the highest level since February 2025.
The decision, anticipated by 18 of 35 economists in a Reuters poll, underscores the central bank’s efforts to curb persistent inflationary pressures. Governor Shin Hyun Song emphasized a gradual approach, noting the need to assess the impact of the back-to-back increases while maintaining financial stability. "We need to evaluate the effects of the two hikes and pace our actions accordingly," he said.
The central bank also revised its 2026 GDP growth forecast upward to 3.3% from a prior estimate of 2.6%, while leaving its inflation projection unchanged at 2.7%. Dot plot projections suggest a median terminal rate of 3.25% by year-end, with a minority of policymakers eyeing a peak of 3.50% or a steady hold at 3.00%.
Analysts anticipate one additional hike in early 2027, followed by a prolonged pause through at least the end of next year. Korea Investment Securities’ Ahn Jae-kyun described the decision as "dovish" given the upgraded growth outlook, adding that a hold in October appears likely. "The exchange rate is likely to stabilise, and financial stability concerns support a pause in the fourth quarter," he said.
South Korea’s policy-sensitive treasury bond futures rose 0.2 points to 103.52 at 03:19 GMT, reflecting muted market reaction to the move. The Bank of Korea’s policy path remains closely watched amid global monetary tightening cycles, with comparisons drawn to the Federal Reserve and Bank of Japan’s recent policy adjustments.
