Bank of Korea says data will guide further rate hikes as it assesses two earlier increases

The timing and pace of further interest rate increases will depend on incoming economic data as the Bank of Korea assesses the effects of two preemptive hikes. Risks to growth and inflation have increased, but external uncertainty also supports taking time to review conditions.

In opening remarks at a monetary policy press conference on October 22, 2026, Bank of Korea Governor Shin Hyun-song said policymakers would closely examine incoming data before deciding when and how quickly to raise rates further. The Monetary Policy Board unanimously held the benchmark rate at 3%.

Shin said upside risks to growth and inflation had increased since the August forecasts, but policymakers could wait for confirmation from third-quarter GDP and October inflation data. With the earlier rate increases transmitting smoothly through financial markets, he said their effects on growth, inflation and financial stability warranted further assessment.

Two earlier hikes under review as external uncertainty persists

Developments in the Middle East, monetary and fiscal policies in major economies, and potential policy changes after the US midterm elections were identified as key considerations. Shin said the uncertainty justified monitoring developments further while leaving rates unchanged.

Rising global long-term yields and concerns about the sustainability of AI investment also required attention. He said long-term government bond yields in major economies had climbed sharply amid inflation concerns, expectations of rate increases, fiscal sustainability worries and concerns over AI-related corporate bond supply. The implications for South Korea also needed assessment.

Financial stability risks remained. Shin said total household lending across the financial sector had declined as net repayments of other loans offset increases elsewhere, but housing-related lending continued to grow. House price increases had also accelerated again, particularly among lower- and mid-priced homes in Seoul and in parts of Gyeonggi Province.

Exports seen exceeding $1 trillion as growth outpaces forecasts

South Korea’s economy was growing faster than expected, led by exports and investment, Shin said. September exports reached a record above $120 billion as IT shipments posted triple-digit year-on-year growth and non-IT export growth broadened.

He expected customs-cleared exports to exceed $1 trillion this year and the current account surplus to surpass the August forecast of $450 billion. Semiconductor-related investment was also continuing to expand strongly.

Consumption had temporarily softened because of a stock market correction and auto industry strikes, but remained on a gradual recovery path, he said. Export and investment gains from the semiconductor expansion, together with improving incomes supporting consumption, were expected to lift growth this year and next substantially above the August forecasts.

Inflation next year expected to exceed earlier forecasts

Inflation pressures could persist longer than previously expected. Shin said September consumer inflation and core inflation stood at 2.9% and 2.8%, respectively, with durable goods and personal services contributing to price increases. Short-term inflation expectations remained in the upper 2% range.

Despite a decline in the exchange rate, he expected a rebound in oil prices and rising semiconductor prices to feed through more broadly into costs, while demand pressures gradually increased. Consumer and core inflation this year were expected to broadly match the August forecasts, but both were projected to exceed the earlier forecasts next year.

Shin said policy needed to account for resilient growth, inflation expected to remain above target for a considerable period, and financial stability risks. He said a policy response would remain necessary until policymakers were confident inflation was converging sustainably toward the target.