Bank of Korea chief says rate hikes bought time to counter financial risks

• Bank of Korea Governor Shin Hyun-song said back-to-back rate hikes have provided time to respond to financial risks.
• The BOK raised its benchmark interest rate to 3% in July and August.
• Shin stated that preemptive rate hikes help stabilize the market and reduce overall costs.
• South Korea's economy is expected to see a significant increase in its growth rate this year, driven by strong semiconductor exports.
• The BOK raised its growth forecast to 3.3% for 2026 and 2.9% for 2027.
• Consumer prices are expected to remain above the 2% target.

Bank of Korea Governor Shin Hyun-song said Monday that the central bank's consecutive interest rate hikes have provided it with time to act against potential financial risks. Shin stated during a parliamentary audit that the BOK's decision to raise rates earlier than other major countries has helped stabilize the market.

The BOK lifted its benchmark interest rate to 3 percent over two meetings in July and August, citing preemptive action against accelerating inflationary pressures. Shin likened the move to "A stitch in time saves nine," emphasizing the benefit of immediate action.

He also noted that yields on Korean government bonds have remained stable in recent weeks, suggesting that while rate hikes cause some pain, preemptive action ultimately reduces overall market costs.

Regarding increased payments for overseas artificial intelligence (AI) service subscriptions, Shin said the BOK will work to incorporate more accurate data into national statistics, as current data does not provide a breakdown of AI subscription fees within software copyright payments.

In a separate report submitted to the National Assembly, the BOK projected solid economic growth for South Korea, driven by strong semiconductor exports. The central bank raised its growth forecast to 3.3 percent for 2026 and 2.9 percent for 2027, expecting the positive impact of the semiconductor upcycle to spread to domestic demand, including consumer spending.

The BOK anticipates consumer prices will remain above its 2 percent target, with core inflation rising nearly 3 percent recently due to supply chain disruptions from the Middle East crisis. The bank plans to closely monitor inflation, economic trends, and financial stability to determine the timing and pace of future rate adjustments. The next BOK rate-setting meeting is scheduled for Oct. 22.