Bank of Korea Holds Rates at 3 Percent Unanimously as Won Hits a Two-Year High and Kospi Falls 3.7 Percent

The Bank of Korea held its benchmark interest rate at 3.00 percent on the 22nd. The decision was unanimous. After the decision, the won strengthened to its strongest level of 2026, while the Kospi plunged 3.67 percent in a single day. The divergence between a strong currency and weak stocks persisted after the decision, and the gap widened further.

All seven members of the Monetary Policy Board voted to hold. It was the outcome all 34 economists surveyed by Reuters had expected. The central bank raised rates by 0.25 percentage point twice, in July and August, and has since entered a phase of pausing to watch the effects play out. Some had raised the possibility of a hawkish dissenting vote before the meeting, but none materialized.

Governor Shin Hyun-song said at a press conference, “At the August hike, I said we had done with a hoe a job that called for a shovel. This hold is the fruit of that hoeing,” Aju Press reported. The remark meant that raising rates preemptively in the summer had made the pause possible.

Shin said “growth and inflation indicators may come in stronger than the August outlook, so we need to maintain the current restrictive policy stance,” adding that he would “respond until we are confident that inflation will settle stably at the target level of 2 percent,” Aju Press reported.

The bank projected that growth this year and next would come in considerably above the August forecasts of 3.3 percent and 2.9 percent. This year’s consumer price inflation of 2.7 percent and core inflation of 2.5 percent matched the August outlook, but both figures for next year were revised up, with consumer prices seen rising more than 2.3 percent and core prices more than 2.5 percent, Reuters and Aju Press reported. The point at which inflation nears the 2 percent target was put at 2028.

Market attention has already shifted to the next step. The median forecast of economists surveyed by Reuters is a 0.25 percentage point increase in November to 3.25 percent, followed by a rise to 3.50 percent in the first quarter of next year. The median of the Bank of Korea’s dot plot matches that path. On the terminal rate, Shin said “we do not necessarily have to follow the market consensus” and that the bank would “refine our thinking and conduct monetary policy without bias,” Reuters reported. Of 20 experts surveyed by the Seoul Economic Daily, 95 percent had expected the hold and 90 percent predicted a November increase. The advance estimate of third-quarter gross domestic product is due on the 27th and October consumer prices on Nov. 2, and the year’s final rate decision meeting falls on Nov. 26.

Currency markets read the hold as a factor for won strength. In the Seoul foreign exchange market, the won-dollar rate closed daytime trading at 1,324.2 won, down 1 won from the previous day, the Seoul Economic Daily reported. During the session it fell as low as 1,322.7 won, the lowest level since Oct. 2, 2024, and it marked a fifth straight session at a new high for the year. Shin described the recent decline in the exchange rate as “an abnormal situation being corrected.”

Stocks reacted less to the rate decision itself than to negative news from the United States. The Kospi closed down 210.72 points, or 3.67 percent, at 5,524.94, giving back most of the previous day’s 3.29 percent rebound. Samsung Electronics finished at 214,500 won and SK hynix at 1,223,000 won, falling in the 3 percent and 5 percent ranges respectively, Aju Press reported. The Kosdaq also fell more than 3.6 percent. Local brokerages said the Bank of Korea’s hawkish message, profit-taking after the previous day’s sharp rise, and concerns over the cost of artificial intelligence investment following Meta’s earnings combined to weigh on the market. Foreign and institutional investors were net sellers, while individuals bought. One outlet assessed that “the rate decision itself did not move the stock market, and the market moved with New York.”

Bonds rose despite the hawkish remarks. The yield on two-year government bonds fell 1.2 basis points to 3.771 percent, and the 10-year yield fell 1.2 basis points to 4.148 percent, Aju Press reported.

Despite the hold, the bank’s stance remains restrictive. Consumer prices rose 2.9 percent in September, above the 2 percent target for a 13th straight month, and exports from January through September exceeded $800 billion for the first time ever, Reuters reported.