Bank of Korea faces mounting pressure to lift rates after Fed's first hike in three years

The U.S. Federal Reserve’s recent quarter-point hike, its first in more than three years, has expanded the differential between its benchmark and the Bank of Korea’s rate to roughly one percentage point. South Korea’s central bank lifted its key rate to 3 percent in July and August, marking the first consecutive increases since early 2023. Analysts argue that rising inflation, a firm currency, and elevated household debt will likely force the Bank of Korea to consider another hike before year-end, with November seen as a probable window.

The Bank of Korea’s latest policy report stresses the need to assess both domestic and external factors, noting that strong growth and inflation above target are expected to persist. Robust GDP growth, the fastest in 47 years, driven by exports and AI-related investment, adds weight to a hawkish stance. High housing prices in Seoul and surrounding areas further reinforce pressure for tighter policy.