Global Market: Bank of Korea hikes rates again to 3% as growth, inflation stay firm

South Korea’s central bank raised its benchmark interest rate for a second consecutive meeting on Thursday, citing stronger-than-expected economic growth and persistent inflationary pressures stemming from higher energy costs.

The Bank of Korea increased its base rate by 25 basis points to 3.0%, following an identical hike at its previous meeting. According to AFP, the move reflects policymakers’ efforts to contain inflation before higher energy prices feed more broadly into the economy.

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South Korea’s consumer inflation remained elevated at 2.8% year-on-year in July, easing slightly from June but still above the central bank’s 2% target. Energy prices have risen sharply amid the Middle East crisis, adding to inflationary risks.

The central bank also raised its economic growth forecasts, projecting the economy to expand 3.3% this year and 2.9% next year, compared with earlier estimates of 2.6% and 2.1%, respectively.

AFP reported that the Bank of Korea sees exports and investment remaining strong, supported by the semiconductor industry, while a gradual recovery in domestic consumption is expected to provide additional momentum.

South Korea’s semiconductor sector remains a key pillar of economic growth. Samsung Electronics and SK hynix have benefited from surging demand for advanced chips linked to artificial intelligence. Both companies reported substantial increases in profits in the second quarter, underscoring the strength of the chip cycle.

Impact on stocks

The rate hike could create mixed near-term implications for South Korean equities. Higher interest rates generally raise borrowing costs and can put pressure on interest-rate-sensitive sectors such as property, construction and consumer companies.

However, the stronger economic growth outlook and continued strength in semiconductor exports could support the broader market. Samsung Electronics and SK hynix are likely to remain the key drivers for the KOSPI, particularly if global demand for AI-related chips stays robust.

The stronger won that can accompany tighter monetary policy could also weigh on exporters by making Korean goods relatively more expensive overseas, although it may help offset some of the impact of higher energy import costs.

South Korea’s benchmark KOSPI had surged above 9,000 in June, supported by gains in major technology stocks, before a global technology sell-off triggered a sharp correction. The latest rate increase could add some pressure to valuations, but continued semiconductor strength and the upgraded growth forecasts may provide a counterbalance.

Overall, the policy move signals that the Bank of Korea is prioritising inflation control while remaining confident that strong exports, semiconductor demand and improving domestic consumption can sustain economic growth.

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