South Korea's central bank signals shift to high-rate era

The Bank of Korea will steer monetary policy towards an economy marked by stronger growth and higher borrowing costs, Governor Shin Hyun-song told lawmakers, Yonhap reported on October 23. His remarks point to a tightening bias that could persist well into the future.

The comments come as Asia's fourth-largest economy contends with rising prices and a faster recovery than expected. The central bank has turned more hawkish in recent months, and Shin's testimony indicates officials see little chance that the country will go back to the ultra-low interest rates of earlier years.

Appearing at a parliamentary audit at the National Assembly in Seoul, Shin was asked by Rep. Kim Tae-nyeon of the ruling Democratic Party whether an era of very cheap money had ended. The governor agreed that returning to such conditions would be hard.

"We will implement policies effectively in preparation for the prospect of a future environment characterised by high growth and high interest rates," Shin said according to the news agency.

The bank lifted its benchmark rate in both July and August, bringing it to 3%. Those were its first consecutive increases since January 2023, when it delivered the seventh straight hike of a cycle that started in April 2022. Over the three and a half years that followed, policymakers had cut the rate step by step from 3.5% to 2.5% before reversing course.

At its policy meeting one day before the audit, the bank left the rate unchanged. It described the decision as a break in tightening, not an end to it, pointing to higher oil prices, fresh tension in the Middle East and an economic rebound that had beaten forecasts.

Shin told lawmakers he expects growth above 3% in both 2026 and 2027, with demand for artificial intelligence (AI) exports driving the expansion.

"I cannot say the exact numbers (for this year's growth forecast)," Shin said. He noted that the Organisation for Economic Co-operation and Development had raised its 2026 projection for South Korea to 3.7%.

The Bank of Korea lifted its own 2026 forecast to 3.3% from 2.6% in August, and it is expected to raise the figure again in November.