South Korea's financial regulator decided on Thursday to raise the key interest rate to 2.75%. This tightening of monetary policy is the first since January 2023. The move is driven by the country's consumer price growth reaching a three-year high.
Against this news, the local stock market faced significant volatility. Leading the decline were the largest memory chip manufacturers — SK Hynix and Samsung Electronics. The value of these giants' securities dropped sharply during Thursday's trading session.
Inflation is to blame
Bank of Korea Governor Shin Hyun-sung, who took office in April, had already signaled a likely rate hike. On Thursday, the regulator raised the key rate by 25 basis points. The decision matched the forecast of economists in a Reuters poll.
The main factors for the tightening were accelerating inflation and a weakening national currency. In early summer, inflation in the country jumped to 3.2%. The regulator has not recorded such high levels since 2023. Local experts warn of risks from large premium payments in the technology sector. Such bonuses could drive up wages, creating additional pressure on the consumer market.
The won's exchange rate against the dollar has fallen by 2.93% since the start of the year. In the first half of June, the national currency's value dropped to 1,561.5 per dollar, hitting a seventeen-year low.
Despite currency pressure, the economy benefits from demand for artificial intelligence infrastructure. In the first quarter, GDP grew by 1.8%. This is the fastest quarterly growth in over five years. Given this data, the government raised its 2026 forecast to a five-year high of 3.0%.
South Korea's rate hike was not an exception. The European Central Bank raised its rate to 2.25% in June. The Bank of Japan raised its rate to 1.00% — a level not seen since 1995. A new wave of rising oil prices in the Middle East is again fueling inflation in the world's leading economies.
How the Bank of Korea's rate hike affects stocks and the crypto market
The financial regulator's decision will have a long-term impact on both traditional stocks and the digital asset sector. South Korean investors traditionally make up a significant portion of the global cryptocurrency market. The country stands out for its huge trading volumes on local platforms like Upbit. The rising cost of borrowing naturally reduces the amount of free liquidity available for high-risk operations.
Stocks may also come under pressure. South Korea's stock market has already experienced strong fluctuations this year due to shifting sentiment around AI stocks and semiconductor companies.
Higher interest rates could increase pressure on the market: financial conditions will tighten, and investors may start moving away from fast-growing technology stocks.
The KOSPI index fell by nearly 6.0% to 6,852. AI chip maker SK Hynix plunged 11.05% to 1,852,000 won after dropping 15% earlier in the week. Samsung Electronics shares lost more than 3%.
Further developments will impact long-term market trends. Relevant economists forecast another rate hike to 3.00% by the end of this year. It remains unclear whether retail investors will adopt a wait-and-see approach or begin actively reallocating available capital.
Expert opinion: The Bank of Korea's decision is a clear signal for crypto investors. Rising borrowing costs reduce risk appetite, and Korean traders, known for their activity in the altcoin market, may start taking profits. In the short term, this creates pressure on bitcoin and major altcoins, especially amid declining liquidity on local exchanges.