The Bank of Korea (BOK) raised its base interest rate to 2,75%, in the first increase since January 2023. The decision, of 25 basis points, was in line with market projections and marks a shift in monetary policy amid accelerating inflation and growth in the South Korean economy.
Consumer inflation reached 3,2% in June, the highest level since 2023. The central bank had already warned that the payment of high bonuses by large technology companies could encourage wage adjustments in other sectors, increasing price pressures.
Another factor monitored by the monetary authority was the behavior of the won. The South Korean currency suffered a sharp depreciation in recent months, coming close to a 17-year low against the dollar. This month, however, it regained strength, trading around 1.484,86 won per dollar.
Last week, Bank of Korea Governor Shin Hyun Song told the Seoul parliament that there was “ample room for the won to appreciate in the future”, adding that “we are currently accumulating a very large current account surplus”.
Higher interest rates usually favor the local currency by increasing the attractiveness of financial assets for foreign investors. This movement tends to encourage capital inflows and reduce some of the pressure on the exchange rate.
The decision was also supported by the economy's performance. South Korea's GDP grew 3,8% in the first quarter, recording the strongest pace since the end of 2021 and opening room for a more restrictive monetary policy.
Even with solid economic indicators, the South Korean financial market remains attentive to the volatility of the shares of semiconductor companies, such as Samsung Electronics and SK Hynix. Fluctuations in these stocks have increased the variations of the Kospi index, while investors also monitor the possible effects of global financial conditions on risk assets, including cryptocurrencies.