The Bank of Korea held its benchmark interest rate at 2.50% Thursday, but a hawkish divide within its board signals an imminent tightening cycle to curb inflation and defend the won. Five of seven members voted to hold; two dissented, favoring a 25-basis-point hike. The decision aligned with 30 of 32 economists polled by Reuters.
Newly appointed Governor Shin Hyun Song, in his first policy debut, made clear the path ahead. “Looking at prices, growth, FX rates, as well as real estate, steps we should be taking going forward is clear,” Shin told reporters in Seoul. He pointed to the bank’s dot plot, which shows rates rising to 3% within six months, with two dots even predicting 3.25%.
The central bank raised its inflation forecast to 2.7% from 2.2%, citing spillovers from rising oil prices due to the Iran war, while upgrading growth to 2.6% from 2.0% on robust first-quarter expansion.
South Korea’s three-year treasury bond futures turned sharply lower after the policy statement and dot plot were released, erasing early gains. The won has weakened 4.5% this year against the dollar, adding import costs for a nation heavily reliant on Middle Eastern energy. Analysts expect a July hike, with more to follow. The shift mirrors a global retreat from monetary easing, as seen in New Zealand and Sri Lanka this week.