South Korea markets: Twin tightening – rate hike and ETF regulation
Hawkish BOK hike.
Group Research - Econs, Ma Tieying17 Jul 2026
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The Bank of Korea raised the base rate to 2.75% from 2.50% at its July 16 meeting, marking the first rate hike since January 2023. The BOK maintained a hawkish stance and signaled that further rate increases are likely, although it provided no guidance on the timing of future moves. Governor Shin expressed confidence in the growth outlook, noting that 2026 GDP growth could exceed the BOK’s 2.6% projection by a wide margin. At the same time, he highlighted concerns that inflation could remain above the target level for an extended period.

The BOK’s hawkish messaging suggests that the rate hike cycle could proceed faster than we previously anticipated. We had expected a total of 50bps of hikes in 2H26 (one in 3Q and one in 4Q). We now expect a cumulative 75bps increase in 2H26, implying two additional 25bps hikes over the remaining three policy meetings this year (August, October, and November), bringing the policy rate to 3.25% by year-end. The next hike could come as early as the August meeting, when the BOK updates its quarterly economic forecasts and policy projections. We do not expect significant upside surprises in real GDP growth during 2H26, as the current AI boom is likely to boost semiconductor export prices and corporate profitability more than export volumes or industrial output. However, we expect CPI inflation to continue rising and overshoot the BOK’s target, reaching around 3.5% YoY in 2H26, as energy cost pass-through effects persist and stronger export revenues and corporate profits translate into higher wages and demand-driven inflation pressures.

Meanwhile, the Financial Services Commission announced tighter regulations on single-stock leveraged ETFs on July 16, in response to heightened KOSPI volatility this year. The new measures include: raising the minimum margin requirement for single-stock leveraged ETFs from KRW10 mn to KRW30 mn; limiting purchases of single-stock leveraged products to 20 shares per transaction; and prohibiting the listing of new single-stock leveraged products. The higher entry requirements and transaction limits should help reduce speculative trading activity and curb leverage-driven volatility. The impact is likely to be gradual rather than triggering a forced liquidation event, as existing products will not be subject to delisting.

Ma Tieying 馬鐵英, CFA

Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
[email protected]


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