South Korea markets: Tightening bias remains intact
Kept rates unchanged.
Group Research - Econs23 Oct 2026
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The Bank of Korea maintained its base rate at 3.00% as expected on October 22, pausing after back-to-back rate hikes in July and August. We view this as an inter-cycle pause to assess the impact of the previous hikes, with the tightening bias remaining intact. The BOK signalled that 2026 and 2027 GDP growth could exceed its current forecasts of 3.3% and 2.9%, respectively, while 2027 CPI inflation could also come in above its current projection of 2.3%. This points to potential upward revisions to the BOK’s economic forecasts at its next quarterly review in November.

We maintain our call for a final 25bp rate hike in November, bringing the policy rate to 3.25% by year-end. We expect 3.25% to be the terminal rate, consistent with our view that annual CPI inflation will remain below 3%. The swap market appears to underestimate the near-term pace of tightening, pricing in no rate move over the next month, while overestimating the terminal rate at around 3.5% over the next 12 months.

The BOK appears comfortable with the KRW’s recent appreciation. At the press conference, the governor noted that a stronger KRW would help contain imported inflation and boost household purchasing power. The KRW has appreciated by 15% against the USD over the past three months. Over the same period, South Korea’s trade surplus widened from USD30.7bn in July to USD50bn in September, as surging memory chip exports more than offset higher energy import costs. The current account surplus is on track to reach a record USD400bn this year, equivalent to a striking 20% of GDP.

We see tactical steepening opportunities in the KRW curve at this juncture. Note that the 3Y/10Y KRW NDIRS spread has flattened from 21 bps on October 9 to 9 bps as of yesterday. First, the BOK slightly hawkish stance increases the odds of a November rate hike—an outcome not yet fully priced in by the swap market. Second, investors are eyeing a tactical rebound in the KOSPI following a 21% MTD correction; a recovery in equities will likely provide upward impetus to long-end KRW rates. Should the USD curve resume its steepening trend, the high-beta KRW rates are expected to follow suit.



Ma Tieying 馬鐵英, CFA

Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
matieying@dbs.com

Samuel Tse 謝家曦

Rates Strategist - Asia 利率策略师 - 亚洲
samueltse@dbs.com



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