The Bank of Korea (BoK) has implemented a second consecutive 25 basis point interest rate hike, bringing the base rate to 3.0%, and has maintained a tightening bias, according to Commerzbank’s Charlie Lay. This policy stance has supported the Korean Won (KRW), which has sharply appreciated since June. The USD/KRW exchange rate fell from 1,385 to around 1,378 following the decision, compared to levels above 1,560 in June, marking a 12% gain for the KRW against the US Dollar since the end of June [1].
Commerzbank notes that the BoK is likely to pause at its next meeting to assess the impact of the cumulative 50 basis points of tightening since July, but there remains scope for another hike to 3.25% if economic growth and core inflation remain firm. The bank expects USD/KRW to consolidate in the 1,360–1,400 range in the near term, with further appreciation of the KRW likely to be more gradual given the magnitude of the recent move [1].
Governor Shin highlighted that, despite the recent rally, the KRW remains weak relative to historical levels and there is potential for further appreciation. He emphasized that pre-emptive tightening is helping to support currency stability. Additionally, the BoK expects South Korea's current-account surplus to reach a record USD450bn in 2026, driven by exceptionally strong semiconductor exports [1].
A large external surplus, reduced financial-account outflows, and a hawkish BoK are cited as positives for the KRW. However, monetary policy is not expected to be the primary driver of the currency after its recent sharp appreciation [1].
CONCLUSION
The Bank of Korea's back-to-back rate hikes and continued tightening bias have bolstered the Korean Won, which has seen significant appreciation against the US Dollar since June. While further gains are expected to be more gradual, the BoK's policy stance and strong external fundamentals are likely to support currency stability in the near term.