The Holders Hold: Korea at 3.00%, Israel at 3.25%, as the BIS Warns AI Is Changing Price Formation

Seoul's unanimous pause

The Bank of Korea's Monetary Policy Board decided to leave the Base Rate unchanged at 3.00%, and all seven members supported the decision. The domestic economy maintained strong growth led by exports and investment, but both consumer price inflation and core inflation sat in the upper 2% range in September, at 2.9% and 2.8% respectively. Growth for this year and next is now expected to be considerably higher than the August forecasts of 3.3% and 2.9%. m:…9709

The hold is a watching brief. The Board says it needs to keep paying attention to financial imbalance risks tied to Seoul's housing market and household debt. Korean Treasury bond yields rose considerably on Middle East tensions, higher oil prices, and surging global bond yields, though much of the increase later reversed. The Board will decide the timing and pace of further Base Rate increases while assessing inflation, the economy, and financial stability. When a central bank says it is watching the timing and pace of further increases, it is telling you the next move is more likely up than down. m:…9709

Jerusalem's 1.6% inflation

The Bank of Israel's Monetary Committee left the interest rate unchanged at 3.25%. In September, inflation over the previous twelve months stood at 1.6%, slightly below the target midpoint. The Bank introduced a revised GDP framework that excludes production abroad, arguing the measure more accurately reflects internal economic dynamics, and forecasts growth on that basis of 3.4% in 2026 and 5.1% in 2027. The department projects the policy rate will be 3% in approximately one year, which is a gentle easing path from here. m:…3733

The constraints are fiscal and geopolitical. The department estimates the government budget deficit at 4.4% of GDP in 2026 and 4.6% in 2027, and the baseline forecast assumes the intensity of fighting remains low while the geopolitical environment stays tense. The shekel depreciated about 3.1% against the dollar since the previous decision. m:…3733

Mexico's landing and the BIS warning

Banco de Mexico Deputy Governor Galia Borja reported that headline inflation has continued to decline and now lies within the variability range. The context matters: the last restrictive cycle began in June 2021 with 15 consecutive hikes totaling 725 basis points, and the easing cycle concluded in May 2026. Mexico's economic activity is slowing, driven by manufacturing sluggishness and softening services, though the country has been the leading supplier to the U.S. since 2023 and non-automotive exports have doubled since 2020. Peso volatility has increased in recent weeks, reducing the carry trade's appeal. m:…0954

Against this backdrop, BIS Chief Representative for Asia and the Pacific Tao Zhang told central bankers that AI is reshaping their job. Algorithmic pricing lets online retailers change prices more frequently and set more uniform prices across locations, so aggregate shocks may feed through to consumer prices more quickly, potentially changing inflation dynamics. Financial institutions using similar models, data, or decision rules may engage in herding, and correlated selling could amplify price moves in stress. Zhang also flagged a growing role for debt, including private credit, and circular financing among firms within the AI ecosystem, and argued authorities should run macroprudential analysis on how the system responds to a sharp AI-asset repricing. Reasoning: the holders are holding against last cycle's models while the BIS is telling them the models themselves are changing. m:…5268