What is the likelihood of a rate hike next week? The governor of the Bank of Korea has strengthened the hawkish tone, saying it is "necessary" to raise interest rates at the appropriate time.

The Governor of the Bank of Korea, Shin Wan-son, stated that due to persistent inflation above the target level, improving economic growth, and rising financial stability risks, it is necessary for the central bank to raise the benchmark interest rate at an appropriate time. This statement has strengthened market expectations that the central bank will begin raising interest rates at the next monetary policy meeting next week. Shin Wan-son stated on Thursday during a policy report to the National Assembly's Planning and Finance Committee that the central bank has kept the benchmark interest rate at 2.5% since July last year. "Regarding future monetary policy operations, considering the persistent inflation above the target, improving economic conditions, and rising financial stability risks, we judge it necessary to raise the benchmark interest rate at an appropriate time." This argument continues the Bank of Korea's gradual shift towards a hawkish policy tone since May, when the bank raised its 2026 economic growth forecasts and implied that multiple factors such as inflation, growth, exchange rates, and financial imbalances are increasingly pointing towards the same policy direction. The Bank of Korea's next monetary policy meeting is scheduled for July 16th. From an economic perspective, Shin Wan-son emphasized that, driven by strong semiconductor exports, South Korea's economic growth has expanded, especially as the global adoption of artificial intelligence (AI) has boosted semiconductor demand, and the rise in semiconductor prices has significantly increased nominal GDP growth. He stated that with ongoing semiconductor prosperity and easing tensions in the Middle East, it is expected that the South Korean economy will continue to maintain robust growth. The International Monetary Fund recently raised its economic growth forecasts for Korea, with the largest increase among the top 30 major economies globally, mainly supported by strong demand for semiconductors. Regarding inflation, Shin Wan-son pointed out that consumer price increases in the first half of this year have significantly expanded due to rising international oil prices. Despite some easing effects from the Middle East situation, the accumulated cost increases are gradually transmitting, and pressure from domestic demand is also rising. It is expected that inflation will remain high for a considerable period of time. In the area of financial stability, Shin Wan-son warned of accumulating risks. House prices in Seoul and surrounding areas are rising again rapidly, coupled with an increase in leverage-driven investments, leading to ongoing accumulation of financial imbalances. In the foreign exchange market, despite maintaining a large current account surplus, the Korean won exchange rate against the US dollar fluctuates at high levels around 1500 won due to continued net selling of Korean stocks by foreign investors and a strengthening US dollar. As for the stock market, driven by strong core industry performance and improvements in the capital market system, stock prices surged in the past, but recently there has been a correction due to profit-taking by foreign investors and asset rebalancing. Shin Wan-son stated that due to the expansion of the real economy and the robust resilience of financial institutions, the overall financial system in South Korea has remained stable in the highly uncertain external environment. However, he also warned that the accumulation of financial imbalances caused by the rapid rise in house prices in the capital area, as well as the high volatility in the financial and foreign exchange markets, are potential "instability factors." The Bank of Korea stated that in an environment of high uncertainty domestically and internationally, the bank has been working in coordination with the government to actively stabilize the financial and foreign exchange markets, and is promoting various institutional improvements to effectively respond to changes in the financial and economic environment. Meanwhile, policymakers will continue to monitor risks such as geopolitical tensions, global monetary policy trends, and the uncertainty of AI-related investments to maintain market stability.