Stronger economic growth reduces expectations for BOK rate cuts
Published: 26 Apr. 2026, 20:36
![U.S. dollar bills and Korean won at a branch of Hana Bank in central Seoul on April 3. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/04/26/2cd924d3-b06f-4c09-aacf-4345ddd28f93.jpg)
U.S. dollar bills and Korean won at a branch of Hana Bank in central Seoul on April 3. [YONHAP]
Korea’s stronger-than-expected economic growth is rapidly reshaping the monetary policy outlook, as fading slowdown fears and persistent inflation dampen expectations for rate cuts and push the Bank of Korea (BOK) closer to a potential rate hike cycle.
The country's first-quarter growth of 1.7 percent, announced by the BOK, marks the highest level since the third quarter of 2020, when growth reached 2.2 percent, about five years and six months ago. Earlier forecasts had projected that the Iran war would push up oil prices and disrupt supply chains, hindering growth.
Government bond yields jumped sharply on Thursday when BOK's recent growth data was released that day and continued to rise the following day, according to the financial investment industry on Sunday.
The three-year Treasury yield rose 9.3 basis points, with one basis point equal to 0.01 percentage points, in a single day to 3.458 percent. Yields climbed across all maturities, meaning bond prices fell, signaling that expectations for rate cuts are rapidly fading while the possibility of a rate increase is beginning to be priced in.
A surge in semiconductor exports drove growth through net exports, while facility investment and construction investment also turned positive, confirming a recovery trend. The upward momentum of the semiconductor cycle proved stronger than geopolitical risks.
“The data show the resilience of the Korean economy,” BOK Gov. Shin Hyun-song said.
![The exterior of the Bank of Korea headquarters in Jung District, central Seoul, on Aug. 12, 2025. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/04/26/3a234527-199a-42f0-855a-08a10462e0ab.jpg)
The exterior of the Bank of Korea headquarters in Jung District, central Seoul, on Aug. 12, 2025. [YONHAP]
Global investment banks are also raising their growth outlooks.
J.P. Morgan lifted its forecast for Korea’s growth this year to 3 percent. Citibank raised its projection to 2.9 percent.
Domestically, NH Investment & Securities raised its forecast to 2.5 percent and projected export growth of 30 percent as it strengthened expectations of an economic recovery.
The irony is that the rebound in growth is placing pressure on monetary policy. As concerns over a slowdown ease, the rationale for cutting interest rates weakens. At the same time, inflationary pressures remain elevated, effectively removing a key obstacle to tightening.
“Growth resilience and rising inflation are occurring at the same time, causing expectations for rate cuts to retreat quickly and bringing the possibility of tightening back into focus,” Kim Myeong-sil, a researcher at iM Securities, said.
Import prices rose by more than 16 percent last month, while inflation expectations climbed to 2.9 percent, suggesting continued upward price pressure. With oil prices rising and exchange rate volatility persisting, cost increases are likely to be passed on to consumer prices. Meanwhile, the Composite Consumer Sentiment Index fell below the benchmark level to 99.2, signaling weakening perceived economic conditions.
With inflation ultimately serving as the key benchmark for monetary policy decisions, analysts say the balance is increasingly tilting toward tightening. Shin has also indicated that "price stability would take priority" if growth and inflation come into conflict, leaving open the possibility of rate hikes.
Markets have begun to reflect such scenarios. J.P. Morgan projected two 0.25 percentage-point rate hikes in November this year and November next year. Citibank forecast hikes in July and October, with the policy rate reaching three percent by the end of the year and 3.25 percent to 3.5 percent next year. Samsung Securities revised its outlook from a prolonged hold to two rate hikes next year, raising its projection from 2.5 percent to three percent.
![Visitors view SK hynix semiconductor products on view at the SK AI Summit 2025 held at Coex, Gangnam District, southern Seoul, on Nov. 3, 2025. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2026/04/26/f5b91a0c-8244-4d7a-af4b-60aeafed0323.jpg)
Visitors view SK hynix semiconductor products on view at the SK AI Summit 2025 held at Coex, Gangnam District, southern Seoul, on Nov. 3, 2025. [NEWS1]
A series of major central bank meetings this week is emerging as another key variable. Central banks, including the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan, are scheduled to meet in succession, and rates are widely expected to remain unchanged.
However, if signals of prolonged global tightening strengthen, expectations for rate hikes in Korea could increase further, adding volatility to the bond market.
“The Federal Open Market Committee is likely to hold rates steady, but the key will be the statement language and comments by Fed Chair Jerome Powell on oil prices,” Na Jeong-hwan, a researcher at NH Investment & Securities, said. “West Texas Intermediate crude is still trading in the range of $80 to $100 per barrel, and how the Federal Reserve assesses oil-driven inflation risks will be critical.”
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM WON [[email protected]]
with the Korea JoongAng Daily
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