South Korea’s 10-year government bond yield traded around 4.33% in mid-July, hovering near its highest level in more than three years, after the Bank of Korea raised its policy rate to 2.75% as widely expected. The move was the first rate increase since January 2023 and was broadly seen by markets as the beginning of a new tightening cycle.
The decision came after months of increasingly hawkish signals from the central bank. Since presiding over his first policy meeting in May, Governor Shin Hyun Song has repeatedly argued that stubborn inflation, resilient economic growth, exchange rate pressures, and financial stability concerns all justify a tighter policy stance.
The Bank of Korea noted that an AI-driven semiconductor boom is likely to push economic growth well above its May forecast of 2.6%, while inflation is expected to remain above the 2% target for an extended period. Policymakers also indicated that further rate hikes remain on the table, with the timing and pace of additional tightening to be guided by incoming economic data.
