The Bank of Korea (BOK) left its benchmark interest rate at 3% on October 22, pausing after raising borrowing costs at its two previous meetings, Yonhap reported on October 22. All seven members of the Monetary Policy Board backed the decision, which markets had widely expected.

The hold gives policymakers time to gauge the effect of the July and August increases, the first consecutive hikes since January 2023. The pause comes as conflict in the Middle East pushes up oil prices and strong chip exports drive faster growth than forecast. The base rate feeds directly into the overnight call rate and from there into deposit, loan and wider market rates, according to the central bank. The board sets the rate eight times a year.

"Given the growing uncertainties surrounding the Middle East conflict and monetary and fiscal policies in major economies, the board judged that it would be necessary to assess developments in both domestic and external risk factors and the effects of the two prior rate hikes while maintaining the current level of the base rate," the board said in a statement.

The bank had described the earlier increases as "preemptive action" against inflation. It paused partly over concern that higher borrowing costs would weigh on lower-income households. Governor Shin Hyun-song made clear that the bank would keep its tightening bias.

"The back-to-back rate hikes give the BOK room to maneuver," Shin told a press conference. "However, it is necessary to continue monetary tightening."

Consumer price growth was 2.8% in July, 3.1% in August and 2.9% in September, and October is expected to be similar. Shin said inflation should near the 2% target in 2028.

The economy grew 1.8% in the first quarter and 0.6% in the second. The current account surplus reached $279.2bn in the first eight months, more than four times the level a year earlier. The bank said growth this year and next would be "considerably higher" than its August projections of 3.3% and 2.9%.

Shin said the won's rise to around KRW1,320 per dollar from about KRW1,560 in June had supported spending. "But the Korean currency is still undervalued in terms of effective exchange rate," he said.

Markets anticipate another hike at the next meeting on November 26.