Key facts
- The Bank of Korea raised its benchmark interest rate by 0.25 percentage point to 3%.
- This is the second consecutive rate hike by the central bank.
- The Bank of Korea revised its 2026 economic growth forecast to 3.3% from 2.6%.
- Consumer prices rose 2.8% in July from a year earlier.
- Core inflation advanced 2.6% in July, the sharpest increase since December 2023.
The Bank of Korea (BOK) raised its benchmark interest rate by 0.25 percentage point to 3% on Thursday, marking the second consecutive meeting with a rate hike aimed at curbing inflation and addressing financial stability risks. This decision brings the key rate to its highest level since January 2025.
The central bank's Monetary Policy Board supported the hike with six out of seven members voting in favor, while one member proposed keeping the rate unchanged. The BOK cited rising inflationary pressures, driven by higher oil prices and renewed uncertainty in the Middle East, as key factors influencing the decision.
Recent data showed South Korea's consumer prices increased 2.8% in July year-on-year, falling below the 3% mark but still above the BOK's 2% target. Core inflation, excluding volatile food and energy prices, rose 2.6% in July, the highest since December 2023.
Despite inflationary concerns, the South Korean economy is showing resilience. The BOK revised its 2026 economic growth forecast upward to 3.3% from 2.6%, reflecting a better-than-expected economic recovery. The economy expanded 3.8% in the first six months of 2026. The central bank maintained its inflation forecasts for 2026 and 2027 at 2.7% and 2.3%, respectively.