This week’s biggest focus for South Korean financial markets is the Bank of Korea’s Monetary Policy Board decision on the benchmark interest rate, scheduled for Aug. 27. After the central bank raised its policy rate from 2.50% to 2.75% last month\u2014its first monetary tightening in three and a half years\u2014market expectations are sharply divided over whether the August meeting will bring a second consecutive hike or a pause to assess conditions.<\/p>\n
A Yonhap News survey of six economists found that four expect a hold, while two forecast a 25-basis-point increase. Notably, even those projecting a hold do not believe the Bank of Korea’s hiking cycle is over. The prevailing view is that even if the central bank pauses this month, additional hikes could follow in the fourth quarter or the first quarter of next year.<\/p>\n
The Case for a Hold: Pace Management and Currency Stability<\/p>\n
The core argument for a hold is pace management. Having already raised rates in July, the Bank of Korea is likely to focus on assessing the effects of that move in August. The fact that July consumer price inflation slowed to 2.8% year-on-year\u2014returning to the 2% range for the first time in three months\u2014and that the recent decline in the won-dollar exchange rate has eased import price and financial stability pressures are also cited as factors reducing the urgency for back-to-back hikes.<\/p>\n
Jang Min, a senior research fellow at the Korea Institute of Finance, said more time is needed to confirm the inflation trajectory following July’s hike and to gauge U.S. monetary policy uncertainty. While consumer inflation still exceeds the central bank’s 2.0% target, the recent downward trend suggests there is room to pause for one meeting.<\/p>\n
Cho Young-moo, head of NH Financial Research Institute, also leaned toward a hold, citing the burden of consecutive hikes, currency stability, and the need to assess the impact of the previous increase. Ahn Ye-ha, a senior analyst at Kiwoom Securities, similarly judged that financial stability factors\u2014including the weaker exchange rate and soft equity prices\u2014do not make the situation urgent enough to warrant a second straight hike.<\/p>\n
A hold does not necessarily signal a dovish pivot. Those expecting a freeze believe dissenting votes in favor of a hike are likely. In particular, if two or more board members dissent in favor of tightening, the Monetary Policy Board could keep rates unchanged while still sending a strong signal to markets that further hikes remain on the table.<\/p>\n
The Case for a Hike: Growth and Inflation Pressures<\/p>\n
Hike proponents focus on inflation and growth. South Korea’s real gross domestic product (GDP) grew 0.6% quarter-on-quarter in the second quarter of 2026, exceeding the Bank of Korea’s earlier projection, while real gross domestic income (GDI) rose 3.6% from the previous quarter. July core inflation climbed 2.6% year-on-year, the sharpest increase in two years and seven months.<\/p>\n
Park Jeong-woo, an economist at Nomura Securities, said both second-quarter growth and July consumer prices support the case for another hike. With medium- to long-term growth forecasts being revised upward and inflation still running above target, the central bank has room to raise rates consecutively, he argued.<\/p>\n
Ahn Jae-kyun, a research fellow at Korea Investment & Securities, also said that annual growth in the 3% range and inflation in the mid-to-high 2% range provide justification for further tightening. Given the potential for demand-side price pressures to build, he argued that a preemptive hike is needed to anchor inflation expectations.<\/p>\n
Rate Path Outlook Beyond Year-End<\/p>\n
While economists were split on the August decision, their views on the rate path beyond year-end showed little divergence. There was broad consensus that the hiking cycle is likely to continue even if the central bank pauses this month.<\/p>\n
Joo Won, head of research at Hyundai Research Institute, expects a hold in August accompanied by two dissenting votes in favor of a hike. He sees rates either staying at current levels through year-end or rising once more by 25 basis points.<\/p>\n
Jang Min said that regardless of whether the Bank of Korea holds or hikes in August, one or two additional increases are possible within the year. If the central bank pauses in August, it could resume hiking in October and November, with the cycle potentially extending into the first quarter of next year.<\/p>\n
Ahn Ye-ha expects the next hike in October. She projects the year-end benchmark rate at 3.00%, with the terminal rate reaching 3.25% after an additional increase in the first quarter of next year.<\/p>\n
Economists who forecast an August hike also placed the terminal rate at 3.25%\u20133.50%. Ahn Jae-kyun expects the central bank to assess the impact of July-August hikes in the fourth quarter, then raise once more in the first quarter of next year before holding at 3.25%.<\/p>\n
Park Jeong-woo sees the possibility of another hike in October following August. After one more increase in February next year, the hiking cycle could conclude at 3.50%. While the exchange rate has stabilized, he noted that continued instability in the real estate market means the timing of future hikes could depend on housing market trends.<\/p>\n
EconomistInstitutionAugust OutlookTerminal Rate OutlookJang MinKorea Institute of FinanceHold1\u20132 more hikes within the yearCho Young-mooNH Financial Research InstituteHold\u2014Ahn Ye-haKiwoom SecuritiesHold3.25% (Q1 next year)Joo WonHyundai Research InstituteHoldHold through year-end or 1 hikePark Jeong-wooNomura SecuritiesHike3.50% (February next year)Ahn Jae-kyunKorea Investment & SecuritiesHike3.25% (Q1 next year)<\/p>\n
Note: The table summarizes each economist’s August rate outlook and terminal rate projection. Some economists did not provide a separate terminal rate forecast.<\/p>\n
Global Variables: Nvidia Earnings and Jackson Hole<\/p>\n
Separate from the Bank of Korea’s rate decision, South Korean equities this week will also be heavily influenced by U.S. developments. Nvidia is scheduled to report earnings on Aug. 26. With market wariness growing over the AI circular financing centered on Nvidia, investors will be watching closely for what the company says about the sustainability of AI investment and funding, as well as what forward guidance it provides.<\/p>\n
The KOSPI closed last week down 0.93% at the 6,912 level. The decline was attributed to profit-taking in semiconductor names as rising yields on major government bonds\u2014including the U.S. 30-year Treasury yield topping 5.3%\u2014increased rate burdens. However, the index recovered much of its losses late in the week on expectations of large-scale shareholder returns from Samsung Electronics and SK Hynix.<\/p>\n
Another key variable is the keynote speech by Federal Reserve Chair Kevin Warsh at the Jackson Hole meeting scheduled for Aug. 28. The bond market was notably volatile last week, with Treasury yields rebounding just one day after the U.S. Treasury Department announced it would double the size of its bond buyback program.<\/p>\n
Economists broadly expect the Fed to hold rates steady at the September Federal Open Market Committee (FOMC) meeting. The prevailing view is that the Fed will weigh slowing employment and political pressures while confirming whether inflation has peaked. While uncertainty over the oil price outlook remains, most analysts said inflationary pressures are not severe enough to justify an immediate rate hike in September.<\/p>\n
Key Points to Watch<\/p>\n
Beyond the rate decision itself, the number of dissenting votes will be a key focus at this week’s Monetary Policy Board meeting. Even if a hold is decided, multiple dissents in favor of a hike could be interpreted by markets as a signal of further tightening ahead. Conversely, if the central bank delivers a second consecutive hike, attention will likely shift in the fourth quarter to assessing the impact of the increases and monitoring real estate market trends.<\/p>\n
At last month’s rate hike, Bank of Korea Governor Shin Hyun-song said, “The timing and pace of rate increases will be determined by assessing the degree of inflationary pressure, the trajectory of economic improvement, and financial stability conditions.” Regarding the August decision, he stated, “We will respond until we are confident that inflation is converging stably to the target level,” adding that he would carefully review second-quarter national income statistics and July inflation data.<\/p>\n","protected":false},"excerpt":{"rendered":"This week’s biggest focus for South Korean financial markets is the Bank of Korea’s Monetary Policy Board decision…\n","protected":false},"author":2,"featured_media":129020,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[456],"tags":[65910,65908,845,846,65907,65674,65906,49508,11824,335,2397,2295,65909,276,1616,275],"class_list":["post-129019","post","type-post","status-publish","format-standard","has-post-thumbnail","category-bank-of-korea","tag-ahn-jae-kyun","tag-ahn-ye-ha","tag-bank-of-korea","tag-bok","tag-cho-young-moo","tag-jackson-hole-meeting","tag-jang-min","tag-joo-won","tag-kevin-warsh","tag-kospi","tag-monetary-policy-board","tag-nvidia","tag-park-jeong-woo","tag-samsung-electronics","tag-shin-hyun-song","tag-sk-hynix"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/129019","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=129019"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/129019\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/129020"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=129019"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=129019"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=129019"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}