Bank of Korea Says Consecutive Rate Hikes Bought Time Against Financial Risks

Bank of Korea Governor Shin Hyun-song said the central bank’s consecutive interest-rate increases gave policymakers valuable time to respond to potential financial instability, defending the unusually rapid tightening during a parliamentary audit in Seoul on Monday.

The central bank raised its benchmark rate to 3 percent through back-to-back moves in July and August. Shin told lawmakers that Korea began shifting toward higher rates somewhat earlier than other major economies, allowing financial authorities to act before inflation and market volatility became more difficult to contain.

Shin described the consecutive increases as unprecedented and said they delivered a strong signal to investors. Korean government bond yields have remained relatively stable over the past two to three weeks, he said, arguing that the immediate burden of higher borrowing costs could ultimately reduce the broader cost of restoring stability.

The remarks underscore the policy trade-off facing the central bank. Strong semiconductor exports are supporting growth and income, but inflation remains above the BOK’s 2 percent target. Core inflation, which excludes volatile food and energy prices, has approached 3 percent in recent months amid supply disruptions linked to the prolonged crisis in the Middle East.

In a report submitted to the National Assembly, the BOK said the economy should maintain solid growth as the semiconductor upcycle spreads to other sectors. It expects stronger income conditions to support consumer spending and domestic demand. The bank has raised its growth forecasts to 3.3 percent for 2026 and 2.9 percent for 2027.

Gross domestic income, a measure of income generated across the economy, rose 13.2 percent in the first quarter and 15.7 percent in the second quarter from a year earlier, accelerating sharply from growth of 3.5 percent in the final quarter of 2025.

The BOK said it will continue monitoring inflation, economic activity and financial stability before deciding the timing and pace of any additional rate increases. Its next rate-setting meeting is scheduled for Oct. 22.

Shin also addressed the growing flow of payments for overseas artificial intelligence services. Korea recorded a $6.4 billion deficit in its intellectual-property services account during the first half of the year, including $8.9 billion in software copyright-related payments. AI subscription costs are included in that total, but existing current-account statistics do not isolate them. Shin said the bank would seek more detailed data so official statistics better reflect changing spending patterns.