The balance of whether the Bank of Korea will raise interest rates hangs in the balance until the last moment, with economists greatly divided over whether to take action this Thursday.

The South Korean central bank's policy decision this week may not be confirmed until the last moment. Most economists expect the authorities to raise interest rates for the second consecutive time to address stronger-than-expected economic growth and persistent potential inflation. A survey of 22 economists shows that 14 predict the central bank will increase the benchmark interest rate by 0.25 percentage points to 3% on Thursday, while 8 expect rates to remain unchanged. Some domestic media surveys in South Korea indicate even greater divergence in predictions. The South Korean central bank implemented its first interest rate hike since January 2023 in July and stated that further actions would depend on inflation, economic growth, and financial stability. In this regard, the South Korean central bank will release updated forecasts, which are expected to further support tightening policy. Due to stronger-than-expected exports and domestic demand, its economic growth forecast for 2026 is anticipated to be significantly revised up from the 2.6% projected in May. The Korea Development Institute, a state-run think tank, predicts that South Korea's economy will grow by 3.2% this year, while private economists believe there is more room for economic growth. Similarly, inflation expectations may be revised up from the South Korean central bank's estimate of 2.7% in May, reflecting the rise in oil prices, currency depreciation since the beginning of the year, and signs that the semiconductor boom is permeating into investment and consumption sectors. Of course, the authorities might consider the recent strong rebound of the won as a factor reducing the urgency for an immediate rate hike. Since the July meeting, the won has appreciated significantly, with the exchange rate against the dollar breaking through 1400, outperforming all Asian currencies this month, and this rebound is expected to help curb imported inflation. As of the time of writing, the won-dollar exchange rate is around 1383, close to its highest level in 11 months. If the committee maintains the status quo, investors may anticipate a rate hike in October. Any dissent supporting an immediate rate increase would reinforce this expectation, while a unanimous decision to pause rate hikes coupled with an upward shift in the dot plot may suggest that decision-makers agree on the need for further tightening of monetary policy but prefer a more gradual approach. This six-month dot plot will be updated for the first time since May, and the market will closely watch for signals indicating how much further tightening may be needed in the future. Previous guidance from the South Korean central bank has shown a hawkish tendency, and committee member Shin Hyun Song has stated that, given the inflation rate remaining above the target level, bolstered economic growth, and persisting risks to financial stability, it is necessary to maintain the momentum of tightening policy. Committee members have emphasized issues such as rising apartment prices in the Seoul metropolitan area, continued growth in household loans, and increased leveraged stock investments. The government has proposed raising taxes on high-priced and investment properties as part of broader measures to curb housing demand. Minutes from the July meeting indicated that committee members generally agreed that monetary policy should continue to tighten. Several officials stated that the timing and intensity of further policy adjustments should be determined based on forthcoming data.