On Thursday, the Bank of Korea (BOK) raised its benchmark policy rates by 25 basis points, bringing them to 2.75%. This increase aligns with economists' expectations and comes as South Korea faces rising inflation, which reached 3.2% in June, the highest level since early 2023.
The BOK has expressed concerns that substantial performance bonuses in the IT sector could lead to broader wage increases, further fueling inflation. Additionally, the South Korean won has been under pressure, recently hitting a 17-year low against the U.S. dollar, although it has strengthened to 1,484.86 this month.
BOK Governor Shin Hyun Song indicated that there is potential for further strengthening of the won, supported by a significant current account surplus. The economic backdrop is positive, with a 3.8% growth rate in the first quarter, the strongest since late 2021.
However, the rate hike occurs during a period of volatility in the stock market, particularly affecting semiconductor stocks like Samsung Electronics and SK Hynix, which have contributed to a 6% drop in the benchmark Kospi index. This situation highlights the delicate balance the BOK must maintain between controlling inflation and supporting market stability