Bank of Korea holds rates steady as expected to assess impact of consecutive hikes; governor's remarks may signal future policy path.

The Bank of Korea announced on Thursday that it would keep the seven-day repurchase rate unchanged at 3%, in line with market expectations. After raising rates by 25 basis points in July and August respectively to curb inflation triggered by an unprecedented semiconductor-driven economic boomthe central bank's first back-to-back hikes in more than three yearsthe BOK chose to pause to assess the impact of higher borrowing costs. Following the rate decision, the won held at 1,325.85 per dollar, extending an earlier 0.1% gain. The three-year South Korean government bond yield, which is sensitive to monetary policy, also held at 3.81%, down 1 basis point. The decision to stand pat reflects BOK policymakers' desire to allow time to assess how households and businesses are responding to previous rate hikes. BOK Governor Shin Hyun-song had previously said that after the August hike, the central bank would take a gradual approach to raising rates. However, the bank has pledged to maintain restrictive monetary policy until it is confident that inflation will return to its 2% target. Attention now turns to Shin's press conference at 11:10 a.m. Seoul time for clues on whether the BOK will resume rate hikes in November. He will explain the monetary policy committee's considerations behind the rate decision and further elaborate on his expectations for the future policy path. BNP Paribas economist Jeeho Yoon said: "I expect the BOK to deliver the final rate hike of this cycle in November." He expects the BOK's terminal rate to reach 3.25%. "Ultimately, the most critical takeaway from today's meeting is how financial markets will assess the likelihood of a BOK rate hike in November after the meeting," he said, adding that there remains a risk of one more rate hike thereafter. The median of the BOK policy board's interest rate forecasts for the next six months published in August was 3.25%, implying room for one more 25-basis-point hike. Inflationary pressure is an important factor supporting further BOK rate hikes down the road. Although South Korea's September consumer price index (CPI) rose 2.9% year on year, down from 3.1% in August, and core inflation excluding volatile food and energy prices fell to 2.8% from 3.4%, both remain significantly above the BOK's 2% target. With strong semiconductor exports, a gradual recovery in domestic demand and high energy costs combined, underlying price pressures are expected to remain strong. Shin previously warned that persistent cost pressures and strengthening demand will keep inflation elevated for some time. Meanwhile, the property market remains another reason for policymakers to stay cautious. Although the pace of bank household lending has slowed, Seoul apartment prices have risen for 88 consecutive weeks, keeping property market risks firmly on the BOK's radar. The won's appreciation also provides another reason for a gradual policy approach, as a stronger won helps curb imported inflation. Shin said last week that further won appreciation would be ideal, stressing that it would boost household purchasing power and benefit sectors lagging behind the semiconductor-driven economic expansion. Beyond the traditional dual mandate of inflation and growth, financial stability risks are becoming an increasingly weighted variable in the BOK's decision function. South Korean capital markets have seen significantly heightened volatility recently. The KOSPI fell to a six-month low last Thursday and triggered its 10th circuit breaker this year. If the stock market correction continues, it could also affect the pace of the BOK's monetary tightening. This means that although fundamentals support continued rate hikes, financial market fragility could impose substantive constraints on the pace of tightening.