South Korea Holds Rate Steady as Chip Boom Clouds Outlook

The Bank of Korea (BOK) left its key interest rate unchanged at 3.00% on Thursday, following two consecutive increases. A 222.5% jump in early October semiconductor exports still leaves the door open for a rate rise in November.

The monetary policy committee‘s decision matched the expectations of all 34 analysts surveyed by Reuters. Meanwhile, the Korea Composite Stock Price Index (KOSPI) dropped 20.72% over the 10 trading sessions to Oct. 20.

Why Does a Chip Boom Keep Rate Hikes in Play?

According to AJP, semiconductor shipments in the first 20 days of October climbed 222.5% compared with the same period a year earlier.

At the same time, that strength continues to sustain inflationary pressures, the Korea Times noted. Consumer prices increased 2.9% in September, exceeding the central bank’s 2% target, while core inflation slowed to 2.8% from 3.4%.

The board raised borrowing costs by 0.25 percentage points in both July and August, bringing them up from 2.5%.

Nonetheless, Governor Shin Hyun-song told lawmakers on Oct. 12 that higher interest rates put pressure on vulnerable borrowers. He also pointed to Seoul property prices and household debt as concerns.

In a Seoul Economic Daily survey, 18 of 20 experts anticipate a November rate increase. Citibank and Morgan Stanley forecast the key rate will hit 3.5% in early 2027.

Why Are Chip Stocks Falling Despite Surging Exports?

The KOSPI fell 3.73% on Oct. 20 to close at 5,552.74. Samsung Electronics slid 2.98% on that day and SK hynix dropped 4.23%, the Herald Business reported.

Scepticism about returns on artificial intelligence spending is weighing on semiconductor firms. Noh Dong-gil, a researcher at Shinhan Securities, told broadcaster SBS that the decline reflects a reversal of concentrated chip stock holdings. He did not identify any issue specific to South Korea.

Brokerages have yet to call a market bottom. Korea Investment & Securities has indicated 5,100 as a potential support level. Still, the index rebounded 3.29% on Wednesday to 5,735.66 and then opened 1.14% lower on Thursday ahead of the policy announcement.

The BOK is tightening monetary policy during an export boom that depends on AI investment demand that is now being questioned. That makes the November decision reliant on chip orders as much as on inflation. Korean analysis warning of a potential chip oversupply starting in 2029 adds a longer-term risk factor.