Seoul: The Bank of Korea (BOK) raised the benchmark rate by 0.25 percentage points for the second consecutive meeting on Thursday, aiming to curb mounting inflationary pressure. The BOK's Monetary Policy Board elevated the key rate to 3 percent during its regular rate-setting meeting, marking the highest level since January 2025.

According to Yonhap News Agency, the central bank executed its first rate hike in 3 1/2 years in July and marked its first back-to-back rate hikes since January 2023. This follows a series of seven consecutive rate increases starting in April 2022. The board emphasized the necessity of preemptive action to prevent inflation from spreading and maintaining a watchful eye on financial stability risks. They also indicated that future adjustments to the Base Rate would depend on inflation trends, the domestic economy, and financial stability assessments.

The decision saw support from six out of seven board members, with Hwang Kun-il dissenting, advocating for the rate to remain at 2.75 percent. The central bank is determined to maintain a hawkish stance amidst rising inflationary pressures. These pressures are attributed to escalating oil prices and renewed uncertainties in the Middle East, alongside a better-than-expected economic recovery pace.

Recent government data indicated a 2.8 percent rise in consumer prices in July compared to the previous year, dipping below the 3 percent threshold for the first time in three months but remaining above the BOK's target of 2 percent. Core inflation, excluding volatile food and energy prices, increased by 2.6 percent year-on-year in July, the sharpest rise since December 2023's 2.8 percent growth.

International crude prices have also remained high due to escalating military tensions between the United States and Iran. Meanwhile, South Korea's economy is set to achieve annual growth of 3 percent or higher in 2026, the first time in five years, following a 3.8 percent expansion in the first half of the year. The government recently forecasted a 3 percent growth rate for 2026, and the BOK revised its 2026 growth forecast to 3.3 percent from 2.6 percent. The forecast for 2027 is set at 2.9 percent.

The BOK has also retained its earlier consumer price inflation forecasts at 2.7 percent for 2026 and 2.3 percent for 2027.