BOK poised to hold rates as November hike remains in view

The Bank of Korea (BOK) is widely expected to keep its benchmark interest rate at 3 percent at Thursday’s policy meeting, while maintaining a hawkish stance that leaves the door open to further hikes in November, market analysts said Sunday.

Expectations of a pause emerged after BOK Gov. Shin Hyun-song highlighted the burden that rapid rate increases have imposed on vulnerable borrowers. Holding rates steady at the upcoming Monetary Policy Board meeting would give policymakers time to gauge the impact of the recent hikes on inflation, foreign exchange markets and household debt.

Still, strong exports and improving incomes continue to fuel price pressures, suggesting the bank will maintain a hawkish stance and signal that further increases remain possible.

The BOK raised its benchmark rate from 2.5 percent to 2.75 percent in July, followed by another increase to 3 percent in August, describing the back-to-back moves as “a preemptive response” to mounting inflationary pressures.

“This time, the BOK is likely to pause and assess the effects of its previous rate increases,” said Joo Won, deputy director of economic research at the Hyundai Research Institute.

At a parliamentary audit on Oct. 12, Shin noted that the August increase had allowed the central bank “to move ahead of the Federal Reserve’s September rate hike and buy time” to assess the effects of tighter policy.

Recent inflation data have given the bank some room to wait. Consumer prices rose 2.9 percent in September from a year earlier, down from 3.1 percent in August. Core inflation also eased from 3.4 percent in August to 2.8 percent the following month.

Global oil prices and currency movements are also giving the BOK more room to pause, with West Texas Intermediate (WTI) crude below $100 a barrel and the won-dollar exchange rate holding in the 1,350-won range or lower.

But this pause is unlikely to mark the end of the tightening cycle. Inflation still remains above the BOK’s original 2 percent target and stronger semiconductor-led exports have continued to improve the country’s growth outlook, giving policymakers greater scope to raise rates further.

During the parliamentary audit, Shin said, "Decisions on when and how quickly to raise rates further would depend on a close assessment of inflation, economic trends and financial stability," reiterating the bank’s commitment to tightening.

Citibank and Morgan Stanley both expect the central bank to raise rates by a quarter percentage point in November and again early next year, thus bringing the benchmark rate to 3.5 percent in the first quarter of 2027.

Morgan Stanley economist Kathleen Oh argued that the export- and manufacturing-led recovery is strong enough to absorb further rate hikes, even as lower-income households, self-employed workers and small and midsize businesses remain vulnerable to heavy debt burdens.

The two firms differ, however, on the likelihood of dissent in favor of a hike at this month’s meeting. Citi’s chief economist Kim Jin-wook sees one Monetary Policy Board member calling for an increase, while Oh anticipates two.

As a result, markets are likely to focus less on the projected hold itself than on signs of how firmly the BOK is leaning toward another increase. The number of dissenters and their reasoning, as well as the board’s three-month rate projections and Shin’s comments on the policy outlook could all offer clues to the timing of the next move.