The Bank of Korea raised its policy rate 25 basis points to 3% Thursday, its second straight hike, while lifting growth forecasts on the back of a chip-export surge. The Kospi closed 1.53% higher at 6912 after Nvidia's strong quarterly results lifted sentiment toward Samsung Electronics and SK Hynix.
The Bank of Korea tightened policy by 25 basis points to 3% on Thursday, its second consecutive rate hike, while simultaneously raising its growth forecasts for Asia's third-largest economy. Governor Shin Hyun Song raised interest rates by a quarter point for the second consecutive meeting, citing inflation that is projected to stay elevated because of higher energy prices.
Inflation stays above target as growth forecasts rise
Korea's consumer price index rose 2.8% in July, slowing from June's 3.2% but still above the bank's 2% target, where it has remained for more than five years. The bank now sees inflation cooling to 2.7% in 2026 and 2.3% in 2027.
At the same time, the bank raised its GDP forecast to 3.3% growth this year, up from 2.6% previously, with 2027 growth now projected at 2.9%, versus 2.1% before. Thriving exports, particularly of memory chips, drove the upward revision.
Chip exports and Nvidia's results lift sentiment
Korea's exports in the first twenty days of August rose 56% year over year to $55 billion, half of it from chips. The trade surplus reached $14 billion in those three weeks alone. Nvidia's blowout second-quarter results, delivered Wednesday, will most likely bolster analyst expectations for SK Hynix and Samsung Electronics, Korea's semiconductor heavyweights, which together account for more than half of the Kospi index.
The rally comes despite wavering investor confidence in the chip supercycle's longevity. Bank of America's August fund manager survey found that long chip stocks was considered the most crowded trade and the biggest risk to markets among respondents.
Board backs hike with a single dissent
Six board members approved the tightening decision with one dissent, and the bank's dot plot suggests at least one more hike is likely over the next four meetings. Song pointed to rising global bond yields and weakness in the Korean won as contributing factors.
The won has appreciated modestly since hitting a seventeen-year low of 1533 against the dollar this summer, trading fractionally higher Thursday at 1381. Strong exports and a narrowing interest rate gap against U.S. Treasurys have supported the currency.
Meanwhile, the Kospi closed 1.53% higher at 6912 Thursday, though the index remains 26% below its all-time high set earlier this year after a correction in July. SK Hynix and Samsung local shares traded up 2.48% and 1.72% respectively, while SK Hynix's Nasdaq-listed depositary receipts were more than 4% higher at $164.70 in pre-market trading.
Source: MarketWatch
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