[E-Daily Reporter Lee Jeong-yoon ] Although the Bank of Korea unanimously decided to keep the benchmark interest rate unchanged, financial markets reacted to the hawkish (monetary tightening-oriented) monetary policy message. This is interpreted as a result of growing concerns over tightening, as the Bank of Korea raised its growth and inflation forecasts and maintained its stance on further rate hikes.

According to MP Doctor on the 22nd, as of 11:24 a.m. that day, the yield on the 3-year government bond stood at 3.834%, up 2.3 basis points (1 bp = 0.01 percentage point) from the previous trading day. During the session, it rose as high as 3.840%. Bond yields and prices move in opposite directions.

Treasury bond yields initially fell immediately after the announcement that the benchmark interest rate would remain unchanged. However, they reversed course and began rising once the Bank of Korea’s monetary policy statement was released. This is interpreted as the market focusing on the possibility of future rate hikes rather than the rate freeze decision itself, which was in line with market expectations.

The yield on the 2-year government bond is also up 3.0 basis points from the previous trading day, at 3.796%. The yield on the 5-year government bond rose to 3.982%. The 10-year yield is trading at 4.152%, up 0.2 basis points.

The won also strengthened in the foreign exchange market. The won-dollar exchange rate, which had shown little reaction immediately after the announcement of the benchmark rate freeze, fell following the release of the monetary policy statement, dropping to as low as 1,323.6 won during the session. This is interpreted as the Bank of Korea’s decision to leave the door open for further rate hikes supporting the won’s strength.

The Bank of Korea’s Monetary Policy Committee kept the benchmark interest rate unchanged at 3.00% per annum today. This was the first meeting held since two consecutive rate hikes in July and August, and all seven committee members voted in favor of keeping the rate unchanged.

The Bank of Korea explained that, given the heightened external uncertainties—including the situation in the Middle East and the monetary and fiscal policies of major economies—it is necessary to maintain the benchmark interest rate at its current level while monitoring the development of domestic and external risk factors and assessing the ripple effects of the previous two rate hikes.

However, its assessment of growth and inflation has improved compared to previous assessments. The Bank of Korea projected that, driven by strong semiconductor exports and investment, economic growth rates for this year and next year would significantly exceed the August forecasts of 3.3% and 2.9%, respectively.

Regarding inflation, the Bank projected that this year’s consumer price inflation rate would generally be in line with the previous forecast of 2.7%, but that it would exceed the previous forecast of 2.3% next year. It also projected that next year’s core inflation rate would exceed the previous forecast of 2.5%.

In particular, regarding future monetary policy, the Bank of Korea maintained the statement that it would “determine the timing and pace of further rate hikes.” While keeping the benchmark interest rate unchanged, it left the door open for further tightening.

The market appears to view this rate freeze as a temporary adjustment in the pace of tightening rather than the end of the tightening cycle. In particular, the sharp rise in the yield on 3-year government bonds—which is highly sensitive to the future policy rate path—is interpreted as reflecting caution regarding the possibility of further rate hikes. The exchange rate also appears to have weakened due to factors such as the heightened interest rate appeal of won-denominated assets amid expectations of further tightening.