Bank of Korea holds rates at 3% after back-to-back hikes

The Bank of Korea kept its benchmark interest rate at 3.00% on Thursday, giving policymakers time to assess the effects of two consecutive rate hikes on domestic inflation as strong demand for semiconductors continues to underpin economic growth.

The central bank left its seven-day repurchase rate unchanged, as expected by economists. The decision came after two 25-basis-point rate increases in July and August, the central bank’s first back-to-back tightening moves in over three years.

Policymakers opted to take time to evaluate how the earlier increases were affecting domestic demand and price pressures before deciding on further tightening.

The South Korean won strengthened following the decision. The USD/KRW pair fell 0.2% to 1,324.44, indicating a firmer won against the U.S. dollar. South Korea’s benchmark KOSPI index was down 0.7%.

Governor Shin Hyun Song had signalled a gradual approach following the August hike, although the central bank has pledged to maintain restrictive monetary policy until it is confident inflation is converging toward its 2% target.

The decision follows the August rate increase, which drew one dissenting vote in favour of holding rates steady. The central bank’s six-month interest-rate projection also showed a median rate of 3.25%, implying another 25-basis-point increase in the current tightening cycle.

Attention now turns to Shin’s press conference later in the day for further clues on whether policymakers will resume tightening at their November meeting. The governor is expected to explain the board’s reasoning and offer guidance on the policy outlook.

The central bank’s pause comes as South Korea’s semiconductor industry continues to underpin economic growth, supporting exports and domestic activity while adding to demand-side inflation pressures.

Governor Shin has indicated that the Bank of Korea will maintain a restrictive policy stance until it is more assured that inflation is moving toward its 2% target, keeping the door open to further rate increases