Sep 26 2026 12:00 AM EST

KRW Gains on Rate Hikes as INR Weakens on Oil‑Driven Inflation

2026-09-26

The KRWINR currency pair rose 14.8% over the past three months, as the Korean won strengthened on a series of Bank of Korea rate hikes and a record‑size semiconductor export surge, while the Indian rupee slipped under pressure from soaring oil prices and sustained foreign‑portfolio outflows.

Rate hikes and inflation anchor the won

The Bank of Korea raised its base rate twice in 2026 – first by 25 basis points to 2.75 % on 16 July and again to 3.00 % on 27 August – the first back‑to‑back hikes in more than three years. The moves were justified by “persistent inflationary pressure” with consumer‑price growth at 2.8 % in July and core inflation at 2.6 %, both above the BoK’s 2 % target. The tighter policy stance reduced the incentive for investors to hold won‑denominated assets, supporting the currency’s appreciation.

Semiconductor export boom expands the current account

Export data for August 2026 show total shipments of $98.25 bn, up 68.7 % YoY, with semiconductor exports alone reaching $46.65 bn – a surge of 209 % from the prior year. The export surge lifted the current‑account surplus to a record $49.73 bn in June and $42.08 bn in July, reinforcing the won’s upward momentum despite a stronger US dollar.

Rupee under oil‑price and capital‑outflow pressure

The Indian rupee depreciated from around 89.86 to 95.43 per US dollar, a fall of roughly 6 % YTD. The move was driven by a crude‑import bill of $74.8 bn – up 48 % YoY – as Brent crude spiked to about $120 per barrel following the US‑Israel‑Iran conflict. Foreign‑portfolio investors recorded net outflows of roughly 3.33 lakh crore in FY 26, and the Reserve Bank of India kept the repo rate unchanged at 5.25 %, limiting monetary support for the currency.

Cross‑currency dynamics and risk appetite

The combined effect of a strengthening won – illustrated by the USD/KRW rate falling from roughly 1,555 in early July to 1,392.6 on 27 August – and a weakening rupee generated the observed 14.8 % rise in KRWINR. A firm US dollar index around 99 and US Treasury yields near 4.43 % further accentuated the relative move, as both currencies reacted to divergent monetary‑policy paths and differing exposure to the oil‑price shock.

Risks and upcoming catalysts

The current trajectory could be challenged if oil prices retreat, easing the rupee’s import burden, or if the Bank of Korea pauses further tightening, which would reduce the won’s rate‑differential edge. Market participants will watch the BoK’s next policy meeting (scheduled for early October 2026), the RBI’s monetary‑policy review, and upcoming US inflation releases for clues on the direction of global risk appetite. A sustained reversal in foreign‑portfolio flows or a sharp move in the US dollar index would also have the potential to reverse the KRWINR rally.