Bank of Korea Governor: Tightening Continues Until Inflation Stabilizes; Upgrades Growth and Price Forecasts
The Bank of Korea held rates steady after two hikes but signaled a hawkish pause by upgrading GDP and inflation forecasts, insisting on tightening until prices converge to the 2% target.
The Monetary Policy Committee of the Bank of Korea (BOK) decided on October 22 to keep the base rate unchanged at 3.00% annually. This marks the first hold following consecutive rate hikes in July and August (totaling 50 basis points). Despite the pause in action, BOK Governor Shin Hyun-song delivered a strongly hawkish message in the subsequent press conference, explicitly stating that the tight monetary policy stance will persist until inflation stably converges to the 2% target level.
The core of this 'hawkish pause' lies in the BOK's significant upward revision of macroeconomic expectations. Governor Shin noted that compared to the economic outlook released in August, South Korea currently faces greater upside risks to both growth and prices. He predicted that this year's GDP growth would significantly exceed the previous forecast of 3.3%, and next year's projection of 2.9% might also be surpassed. Regarding inflation, he hinted that this year's price rise would likely exceed the previously forecast 2.9%, with similar upward pressure on the 2.8% projection for next year.
This optimistic growth and high-inflation expectation is primarily driven by exports. Shin revealed that South Korea's IT product export growth reached triple digits (262.8%) in September, pushing total monthly exports past $120 billion to a record high. Based on this, the BOK expects total customs exports for the year to reach $1 trillion, with the current account surplus exceeding the August forecast of $450 billion. Strong external demand boosts GDP while simultaneously intensifying domestic inflationary pressures.
Explaining the decision to pause rather than hike further, Shin cited the need to observe the transmission effects of the previous two 'preemptive' rate hikes and assess external uncertainties such as the Middle East situation and the US midterm elections (November 3, 2026). He mentioned that despite the Federal Reserve's rate hike in September, South Korean financial markets remained stable, and the downward stabilization of the won against the dollar helped suppress import prices, thereby enhancing purchasing power for low-income households and mitigating polarization. However, he emphasized that future timing and speed of rate hikes will depend entirely on subsequent data verification, particularly Q3 and Q4 GDP figures and October price trends.