To The Moon

During the Asian session on Thursday (October 22), the USD/KRW pair traded in a narrow range around the 1,326 level, holding near its lowest point since early October 2024. Today's rate decision and post-meeting remarks from the Bank of Korea could offer fresh policy clues for the won's medium-term direction.

The Bank of Korea is expected to keep its benchmark rate unchanged at today's policy meeting, pausing after two consecutive hikes in July and August, though economists say the tightening cycle is not over.

Core expectation: All six economists anticipate a hold

According to a media survey, all six economists expect the Bank of Korea to leave the benchmark rate unchanged, which currently stands at 3.00% after the July and August hikes. Respondents said the central bank will likely maintain its tightening policy stance, but view a pause as more probable than a rare third consecutive increase. The key takeaway is that the Bank of Korea's pause represents a pacing adjustment rather than a directional shift. Policymakers have gained room to adjust the pace of tightening and judge when further hikes are needed, but the overall tightening direction remains unchanged.

Hike backdrop: Strong semiconductor exports, inflation faces dual supply-demand pressures

Economists note that conditions still support tighter policy. Robust semiconductor exports are driving economic growth, while inflation faces upward pressure from both the supply and demand sides. Taken together, these conditions suggest the hiking cycle may continue in the near term. The key point is that strong semiconductor exports provide support for economic growth, enabling the central bank to tighten policy without derailing the expansion, while dual supply-demand inflation pressures require the central bank to maintain its tightening bias. Together, these two factors form the rationale for the Bank of Korea to continue tightening.

External accounts: Current account surplus of $279 billion, nearly four times year-ago level

The strength of the export sector is reflected in South Korea's external accounts. The cumulative current account surplus from January to August reached approximately $279 billion, nearly four times the roughly $70 billion recorded in the same period last year. This surplus underscores the extent to which the economy has benefited from global demand for memory chips and other semiconductor products. The key point about this data is that the current account surplus provides an underlying source of support for the won, even as policy expectations drive day-to-day fluctuations. Strong exports and surplus mean the won's fundamental support is relatively solid, giving the central bank room to tighten while maintaining exchange rate stability.

Market implications: Statement tone and timing of next hike are key

Keeping rates on hold will mark a shift in pace rather than direction. Markets will likely closely watch the central bank's statement and any guidance on the timing of the next move for signals on whether policymakers see further rate hikes as possible in the coming months. The core of this market implication is that since a hold is fully priced in, the market reaction may depend on the tone of the statement and any signals about the timing of the next hike. A hawkish hold—keeping further hikes firmly on the table—could support the won and push short-term South Korean government bond yields higher; any sign that the cycle is nearing its end could weigh on the won.

Summary

The Bank of Korea is expected to keep its benchmark rate unchanged at 3.00% today, pausing after two consecutive hikes in July and August, but economists say the tightening cycle is not over. All six surveyed economists expect a hold, believing the Bank of Korea will likely maintain its tightening stance, though a pause is more probable than a rare third consecutive hike. Strong semiconductor exports are driving growth, and inflation faces dual supply-demand pressures, both of which support the hiking cycle continuing in the near term. The current account surplus from January to August was approximately $279 billion, nearly four times the year-ago level, providing underlying support for the won. Since a hold is fully priced in, the market reaction will depend on the tone of the statement and signals about the timing of the next hike. A hawkish hold could support the won and push short-term South Korean government bond yields higher, while hints that the cycle is nearing its end could weigh on the won. (USD/KRW daily chart, source: Yihuitong) As of 7:09 Beijing time, USD/KRW was quoted at 1,326.09/35.