The Bank of Korea said it expects growth this year and next to be “considerably higher” than previous projections, signaling more tightening to come after holding its benchmark interest rate in the wake of a rare back-to-back increase.
The central bank left its seven-day repurchase rate at 3% on Thursday in a unanimous decision, an outcome predicted by all 24 economists surveyed by Bloomberg. The decision followed quarter-point increases in July and August, the BOK’s first consecutive hikes in more than three years.
The nation’s policy-sensitive three-year yield reversed an earlier decline to trade 2 basis points higher at 3.84% after the central bank offered a stronger growth outlook and as Governor Shin Hyun Song reiterated the need to maintain the central bank’s tightening policy stance during his press conference. The South Korean equity benchmark Kospi dropped more than 2%.
The won gained 0.3% to around 1,323 per dollar, outperforming its Asian peers, helped by improving global risk appetite and Shin’s comment that the currency remains undervalued relative to historical levels. The swaps market continues to price in more than one 25-basis-point rate hike over the next six months.
“The domestic economy maintained strong growth led by exports and investment, inflation remains high at around 3%, and financial stability risks persist,” the bank said in a statement, pointing to uncertainty linked to the war in Iran as a factor in its decision.