BOK’s New Governor Points to Rate Hikes to Come in Hawkish Shift

Bank of Korea (BOK) signage displayed atop the central bank's headquarters in Seoul, South Korea, on Wednesday, Feb. 11, 2026. South Korea is likely to roll out around 10 trillion won ($6.8 billion) in fresh fiscal stimulus as early as March to address uneven economic growth, with support expected for sectors including culture and the arts, Citigroup said in a January report. Photo by SeongJoon Cho /Bloomberg

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(Bloomberg) — South Korea’s new central bank head Shin Hyun Song underscored a forceful hawkish policy shift after Thursday’s stand-pat decision, citing the need for higher interest rates as concerns intensify over financial stability and higher inflation fueled by the Middle East crisis.

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The Bank of Korea held the seven-day repurchase rate at 2.5% on Thursday in a split decision, extending a pause that has been in place since July last year after four cuts between October 2024 and May 2025. The stand-pat decision had been widely expected.

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But the meeting marked a sharp move in the board’s policy stance. Two board members dissented in favor of a rate hike, while updated six-month forward guidance showed policymakers increasingly leaning toward higher borrowing costs in coming months.

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Forward guidance released alongside the decision showed members seeing rates potentially rising as high as 3.25% within six months under risk scenarios, according to the BOK statement. Most projections clustered around 3%, pointing to growing expectations for at least two rate hikes over the coming half year.

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Shin reinforced the hawkish pivot in comments after the decision, saying that a rate increase at the latest meeting would have been justified under the current circumstances.

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“I believe a convincing case could certainly have been made even for raising rates at this meeting,” Shin told reporters, adding that uncertainty ultimately carried greater weight in the discussion, particularly given still-limited evidence of broader underlying price pressures. 

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The BOK also bumped up its inflation outlook for this year to 2.7% from a 2.2% projection given in February, reflecting higher energy costs following the Iran war-driven closure of the Strait of Hormuz. The central bank raised its 2026 growth forecast to 2.6% from 2%, a reflection largely of the booming semiconductor sector. 

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Economists had expected big increases in both forecasts and the new projections are also likely to feed into the speculation of rate hikes to come. 

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The meeting marked the first policy decision chaired by Shin, and the first involving new board member Kim Jinill, a former Federal Reserve economist widely viewed by markets as more hawkish than his predecessor Shin Sung Hwan. 

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“Today’s meeting overall carried an unusually hawkish tone,” said Jeong-Woo Park, an economist at Nomura Holdings Inc. “There were not just one, but two dissenting votes in favor of a hike, including one from the senior deputy governor.”

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The won was largely unchanged throughout the series of BOK events, down 0.5% at 1,507.10 against the dollar around 2 p.m. Seoul time. The yield on three-year government bonds rose about six basis points after news of the two dissenters emerged, and rose another three basis points to 3.79% as markets absorbed Shin’s hawkish remarks at his press briefing.

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The swaps market is currently pricing in nearly five quarter-point rate hikes through the next year. That compares to just around one at the end of February before the outbreak of the US-Iran war.