Global Market: Bank of Korea holds interest rates at 3% after back-to-back hikes

The Bank of Korea kept its benchmark interest rate unchanged at 3.00% on Thursday. 

The central bank's seven-member monetary policy board voted to maintain the seven-day repurchase rate at 3.00%, in line with expectations of all 34 economists surveyed by Reuters.

The decision follows the BOK's first consecutive interest rate increases in more than three years, with the central bank raising rates by 25 basis points in both July and August. Governor Shin Hyun Song had subsequently indicated a preference for a gradual pace of monetary tightening, Reuters reported.

Shin reiterated on October 13, at an International Monetary Fund event, that monetary policy would remain restrictive until inflation converged towards the central bank's target.

South Korea's inflationary pressures have eased but remain elevated. Headline consumer inflation slowed to 2.9% in September from 3.1% in August, staying above the BOK's 2% target.

Meanwhile, the country's export sector continues to benefit from robust global spending on artificial intelligence, which has supported demand for semiconductors. South Korean exports during January-September surpassed $800 billion for the first time, underscoring the strength of external demand.

The combination of resilient economic growth and inflation above target has kept expectations of further rate increases alive, despite the central bank's decision to pause tightening in October.

According to the median forecasts in the Reuters survey, the BOK is expected to raise its benchmark interest rate to 3.25% at its November meeting, in line with the central bank's projected rate path.

The latest pause gives policymakers an opportunity to assess the effects of the previous rate increases while monitoring inflation, financial market volatility and the outlook for export-led economic growth.