Bank of Korea faces pressure to raise rates after Fed hike

Key facts

• The U.S. Federal Reserve raised its benchmark interest rate by 0.25 percentage point.
• The Fed's rate hike brings its benchmark rate to the 3.75-4.00 percent range.
• The interest rate gap between South Korea and the U.S. is now up to 1 percentage point.
• The Bank of Korea previously raised its benchmark rate in July and August 2026.
• Analysts expect the BOK to consider another rate hike within 2026.
• South Korea's nominal GDP grew at the fastest pace in 47 years in the second quarter.

SEOUL, Sept. 17 (Yonhap) -- The Bank of Korea (BOK) is likely to face increasing pressure to further raise its benchmark interest rate following the U.S. Federal Reserve's recent decision to increase its own rate. The Fed delivered its first rate hike in over three years, by a quarter percentage point, to combat rising inflation, pushing its benchmark rate into the 3.75-4.00 percent range. This move widens the interest rate differential between South Korea and the United States to as much as 1 percentage point.

The BOK had previously implemented back-to-back rate increases in July and August 2026, bringing its benchmark rate to 3 percent. Analysts suggest that persistent inflation, coupled with a rising currency rate and high household debt, will likely compel the BOK to consider another rate hike within the year, possibly in November.

Minutes from the BOK's August monetary policy meeting indicated that the central bank's focus is on the timing and pace of future rate adjustments, rather than the decision of whether to raise rates. The BOK stated it will assess domestic and external conditions, anticipating that accelerating inflation and solid economic growth will continue for some time.

South Korea's robust economic growth, including a nominal GDP increase at a 47-year high in the second quarter driven by AI-related exports and investment, further supports the case for an additional rate hike. The expanded interest rate gap and high housing prices in Seoul and surrounding areas are also expected to maintain the BOK's hawkish stance.