The Bank of Korea (BOK) raised interest rates on Thursday and revised its 2026 GDP growth forecast upwards from 2.6% to 3.3%, a one-off increase of 0.7 percentage points. Furthermore, the BOK also raised its 2027 growth forecast from 2.1% to 2.9%. This indicates a significant shift in the BOK's assessment: the South Korean economy no longer needs interest rate cuts for stimulus; rather, it has become strong enough to warrant interest rate hikes to suppress potential inflation and financial stability risks.
This substantial upward revision of the GDP forecast is largely due to the semiconductor supercycle. South Korean media have explicitly pointed out that the central bank believes the robust semiconductor cycle will not only boost exports but also further stimulate the overall economy through investment and private consumption. Therefore, today's rate hike, to some extent, serves as a macro-level confirmation of the booming AI semiconductor industry.
In addition, the BOK maintained its 2026 inflation forecast at 2.7% and its 2027 forecast at 2.3%. "GDP revised upwards, inflation unchanged" means that the BOK believes economic growth is much stronger than before, but does not currently anticipate inflation spiraling out of control. Therefore, it can raise interest rates with relative confidence.
