Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
BOK lifts 2026 growth forecast to 2.6% from 2% on strong chip exports
Bank of Korea Gov. Shin Hyun-song speaks at a press conference following a Monetary Policy Board meeting at the central bank's headquarters in Seoul, Thursday. Korea Times photo by Shim Hyun-chul
By Lee Hyo-jin
Central bank holds base rate steady at 2.5%, signals hikes later this year
The Bank of Korea (BOK) raised its 2026 growth forecast to 2.6 percent from its previous projection of 2 percent, Thursday, citing a robust outlook for the country's semiconductor exports amid the global artificial intelligence (AI) boom.
The central bank viewed continued strength in the chip sector as outweighing the economic downturn risks stemming from the prolonged conflict in the Middle East.
"The sustainability of the current improvement in growth will ultimately depend on how long the current semiconductor cycle lasts," BOK Gov. Shin Hyun-song said during a press conference.
"There are expectations that the semiconductor cycle would remain strong for a considerable period, as chip prices could stay elevated and semiconductors are not products whose supply can be ramped up quickly in the short term," he added.
Shin also stressed that the benefits of the semiconductor boom would spread across the broader economy, dismissing concerns that gains would be concentrated solely in the chip sector.
"The semiconductor sector will benefit the most directly at first, but there will also be trickle-down effects. Wages and investment will rise, helping spread positive momentum across the broader economy," he said. "Their strong earnings would likely boost corporate tax revenue, benefiting the broader public."
The central bank's upward revision of its 2026 growth forecast appears to reflect stronger-than-expected first-quarter growth, with gross domestic product expanding 1.7 percent from the previous quarter, driven largely by semiconductor exports. That was nearly double the central bank's earlier forecast of 0.9 percent.
The BOK's latest forecast is also significantly higher than projections released earlier this year by major international organizations, including the OECD's 1.7 percent forecast in March and the International Monetary Fund's 1.9 percent projection.
Bank of Korea Gov. Shin Hyun-song, center, bangs the gavel to open a Monetary Policy Board meeting at the central bank in Seoul, Thursday. It was Shin's first rate-setting meeting since he took office on April 21. Korea Times photo by Shim Hyun-chul
The same day, the central bank's Monetary Policy Board held its benchmark interest rate steady at 2.5 percent for an eighth consecutive meeting, while signaling the possibility of rate hikes in the second half of the year. It was Shin's first rate-setting meeting since taking office last month.
Two of the board's seven members — Ryoo Sang-dai and Chang Yong-sung — dissented, arguing that the benchmark rate should be raised by 0.25 percentage points to 2.75 percent.
Through its statement, the board effectively signaled the start of a rate-hike cycle, saying it would "determine the timing of future rate hikes while assessing inflationary pressures, the pace of economic recovery and financial stability."
The governor himself also strongly signaled the possibility of tightening during the press conference.
"The policy direction is relatively clear when looking at inflation, growth, the exchange rate and the housing market. Raising the benchmark rate going forward could provide an opportunity to manage these factors in a more consistent manner," Shin said.
The hawkish signal comes as inflationary pressures deepen amid surging oil prices stemming from the Middle East conflict.
According to the Ministry of Data and Statistics, consumer prices rose 2.6 percent in April from a year earlier, remaining above the central bank's 2 percent target. Prices of petroleum products jumped 21.9 percent, the fastest pace since July 2022.
Shin also cited the recent labor agreement at Samsung Electronics in which union members are expected to receive massive bonuses funded with 10.5 percent of the company's operating profit. "The bonuses could boost purchasing power and increase demand, leading to inflationary pressure," he said.
Still, the top monetary policymaker remained cautious about the timing and extent of future rate hikes.
"Ultimately, we still do not know how far rates will need to go, whether to 3.5 percent or below that level," Shin said. "We will continue monitoring the data and communicating with the market going forward."
The governor said the conflict in the Middle East is the primary cause of the weakening of the Korean won, saying the currency is likely to strengthen when the conflict in the region is resolved. He said the authorities would take decisive action against excessive foreign exchange volatility.