Bank of Korea Stands Pat But Signals Tighter Policy Ahead — 2nd Update

By Kwanwoo Jun

South Korea's central bank held rates steady at its first meeting under Gov. Shin Hyun-song, though it signaled tighter policy ahead as it raised its forecasts for economic growth and inflation.

The Bank of Korea kept its benchmark seven-day repurchase rate unchanged at 2.50% on Thursday, marking the eighth straight meeting without a change.

"There is a need to raise interest rates at an appropriate time in the future," said Gov. Shin, who assumed office in April and chaired his first rate-setting meeting earlier in the day. Two of the seven BOK policy board members dissented, voting for a rate hike, he said.

Twenty-four of 25 economists surveyed by The Wall Street Journal had forecast no change at the May meeting. Most economists expect the central bank to adopt a more hawkish stance in the coming months, citing upside risks to both economic growth and inflation.

Many project a third-quarter rate increase, potentially as soon as July, citing strong first-quarter growth driven by robust chip exports and higher inflation fueled by elevated oil prices amid Middle East tensions.

The BOK on Thursday raised its growth forecasts for Asia's fourth-largest economy. It now expects gross domestic product to grow 2.6% in 2026, up from its February projection of 2.0%. It also expects the economy to expand 2.1% in 2027, compared with its earlier estimate of 1.8%.

The bank forecasts that inflation will average 2.7% this year and 2.3% next year, up from its previous forecasts of 2.2% in 2026 and 2.0% in 2027.

South Korea's trade-dependent economy has remained resilient despite geopolitical risks stemming from the Middle East conflict. Exports surged 48% from a year earlier in April, following a revised 50% jump in March. The gains were driven by semiconductor shipments amid robust demand from global technology companies building artificial-intelligence infrastructure.

Consumer inflation accelerated to a 21-month high of 2.6% in April from 2.2% in March, underscoring the impact of Middle East tensions and elevated oil prices. Rising inflation is likely to increase pressure on the central bank to join global peers in tightening policy amid the global energy shock.

Gov. Shin, a former official at the Bank for International Settlements, had pledged to prioritize price stability during his confirmation hearing. He said Thursday that inflation in South Korea could peak in the second half of 2026, with the gross domestic product gap likely to turn positive in 2027.

The BOK on Thursday also raised its 2026 core inflation estimate, which strips out volatile food and energy prices, to 2.4% from 2.1% previously.

Analysts increasingly view the BOK as pivoting toward a more hawkish stance, citing rising upside risks to growth and inflation in South Korea.

"Inflation is likely to rise further in the coming months as elevated energy prices feed through into food and other consumer prices," said Capital Economics economist Gareth Leather on Thursday. He projects inflation will peak at 3.4% in August before easing back.

Citigroup economist Jin-Wook Kim said he anticipates the bank will deliver four rate increases--in July and October 2026, and in January and April 2027.

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

May 28, 2026 01:46 ET (05:46 GMT)