DBS Group Research economist Ma Tieying analyzes the latest Bank of Korea (BoK) decision, noting a hawkish shift as the base rate is raised to 2.75%. The report now anticipates a faster tightening cycle, with the policy rate reaching 3.25% by year-end 2026. Growth is expected to benefit from the AI-driven semiconductor sector, while Consumer Price Index (CPI) inflation is projected to overshoot target.<\/p>\n
BoK signals accelerated tightening cycle<\/p>\n
“The Bank of Korea raised the base rate to 2.75% from 2.50% at its July 16 meeting, marking the first rate hike since January 2023. The BOK maintained a hawkish stance and signaled that further rate increases are likely, although it provided no guidance on the timing of future moves.”<\/p>\n
“The BoK\u2019s hawkish messaging suggests that the rate hike cycle could proceed faster than we previously anticipated. We had expected a total of 50bps of hikes in 2H26 (one in 3Q and one in 4Q).”<\/p>\n
“We now expect a cumulative 75bps increase in 2H26, implying two additional 25bps hikes over the remaining three policy meetings this year (August, October, and November), bringing the policy rate to 3.25% by year-end.”<\/p>\n
“We do not expect significant upside surprises in real GDP<\/a> growth during 2H26, as the current AI boom is likely to boost semiconductor export prices and corporate profitability more than export volumes or industrial output.”<\/p>\n “However, we expect CPI inflation to continue rising and overshoot the BoK\u2019s target, reaching around 3.5% YoY in 2H26, as energy cost pass-through effects persist and stronger export revenues and corporate profits translate into higher wages and demand-driven inflation pressures.”<\/p>\n