Stocks have fallen this much, yet the Bank of Korea is expected to raise rates again next month. Depending on this Wednesday's decision, what happens to my loans and stocks?

Why the BOK won't back down even as stocks fall

The Bank of Korea raised its policy rate twice in a row, from 2.50% to 2.75% in July and to 3.00% in August (Aju Business Daily, 2026-10-13). The BOK's targets are inflation and financial stability, not stock prices. Governor Shin Hyun-song told the National Assembly audit that two preemptive hikes bought time and said inflation would stay above the 2% target for quite a while (Aju Business Daily, 2026-10-13). September consumer prices eased to 2.9% and core inflation to 2.8%, but Ahn Jae-kyun, an analyst at Korea Investment & Securities, warned that inflation expectations are stabilizing slowly (Financial News, 2026-10-13).

Housing prices are the other pillar of hiking pressure. Seoul apartment prices rose 0.16% for the week, marking 88 straight weeks of gains, with the pace of increase widening for two consecutive weeks (SBS Biz, 2026-10-16). Household loans across all financial institutions fell by KRW 2.2 trillion in September, the first decline this year, but mortgage loans rose by KRW 3.3 trillion. From the BOK's perspective, a 14% drop in stocks in a week is just a financial market volatility factor, not evidence that housing prices and inflation have turned.

On the other hand, some factors ease the BOK's burden. The won hit 1,327.6 per dollar intraday, its strongest in about two years, easing import price pressure, and retail leverage is already shrinking amid forced liquidations and a KRW 6 trillion drop in investor deposits.

Three paths for the October 22 decision

Since 19 of 20 experts expect a hold, the point to watch is not whether the rate is held but any dissent and the tone of the governor's remarks.

Citi's base case is a hawkish hold with one dissent for a hike, followed by one hike each in November and next February for a terminal rate of 3.50% (SBS Biz, 2026-10-14). Citi named two key variables: stabilizing housing prices and a gradual strengthening of the won. The won has already strengthened, so the remaining key is housing prices.

Impact on your loans

Loan rates moved before the policy rate decision. The September new-loan COFIX rose 0.25%p to 3.43%, the biggest jump in about 3 years and 10 months, and from October 16 the upper end of major banks' 6-month variable mortgage rates rose to 6.04-6.48% (SBS Biz, 2026-10-16). With 64.7% of new mortgage loans in August at variable rates, existing borrowers also face higher interest burdens.

• If you have a variable-rate loan, compare the cost of switching to a fixed or hybrid rate (prepayment fees) with the additional interest you would pay if rates rise another 0.25-0.50%p
• With a hawkish hold, COFIX could rise once more before a November hike. If you plan to switch, doing it before the MPC meeting is better than after

Impact on your stocks

• Bank stocks directly benefit from a hiking path. However, if forced liquidations in stocks and worries over real estate PF defaults overlap, higher interest income could be offset by provisions, so focus on large banks
• Growth stocks and chips are far more affected by the US 10-year and the October 27-28 FOMC than by the BOK. There is little reason to change your chip allocation based on the MPC result alone
• Bond ETFs: With the government cutting bond issuance, supply conditions for long maturities are not bad, but short maturities are safer while a November hike remains possible. If a hawkish hold is confirmed, park cash in short-term government bond ETFs; if it is a dovish hold, respond by modestly increasing medium-term exposure