South Korea’s 10-year government bond yield climbed to around 4.30% in early August, approaching its highest level in three years after the central bank signaled that further interest rate increases are likely. Bank of Korea Senior Deputy Governor Ryoo Sang-dai said robust economic growth is driving persistent underlying inflation. He noted that the won’s recent appreciation and stock market gains give policymakers some room for maneuver, but stressed that core inflation, the sustainability of economic growth, and financial stability will remain the key considerations for monetary policy.
The BOK raised its policy rate by 25 basis points to 2.75% in July, its first rate hike in three and a half years, in response to stronger-than-expected growth and continuing price pressures. While headline inflation eased to 2.8% in July, core inflation inched up to 2.6%, staying above the BOK’s 2% target. Ryoo indicated that another rate increase is likely unless an extraordinary shock occurs, with policymakers set to review updated growth and inflation projections ahead of the August 27 meeting.
