Seoul: South Korea's central bank delivered a quarter-percentage-point interest rate hike Thursday for the first time in 3 1/2 years, as widely expected, to tackle high inflation amid lingering Middle East uncertainties. The Bank of Korea (BOK) convened a Monetary Policy Board meeting and lifted the benchmark rate from 2.5 percent to 2.75 percent.
According to Yonhap News Agency, this marked the first rate increase since January 2023, when the central bank hiked the rate by 0.25 percentage point to 3.5 percent as part of its policy normalization to jumpstart the pandemic-hit economy. The BOK began monetary easing in October 2024 and has cut the benchmark interest rate by a cumulative 100 basis points from 3.5 percent to support economic growth. It had kept the rate unchanged since July 2025.
The decision to raise the benchmark rate by 25 basis points to 2.75 percent reflects mounting inflationary pressures. At its previous rate-setting meeting in May, the central bank left the benchmark rate unchanged for the eighth consecutive meeting. Inflation has remained elevated as persistent Middle East tensions have kept oil prices high.
Recent government data indicated that South Korea's consumer prices rose 3.2 percent in June from a year earlier, marking the steepest growth since December 2023. The figure stayed above 3 percent for the second consecutive month after rising 3.1 percent in May. The high inflation was attributed to the lingering impact of the Middle East war on supply chains and oil prices, as fuel prices surged 24.7 percent last month, marking the sharpest growth since 35.2 percent posted in July 2022.
The Korean won also remained under pressure, staying over the 1,500-won-per-dollar level throughout June and briefly weakening to near the 1,550-won threshold on June 30 for the first time since March 2009 amid broad dollar strength and continued foreign selling of local equities. Meanwhile, exports remained robust, with South Korea's outbound shipments reaching a record US$102.25 billion in June, up 70.9 percent from a year earlier and surpassing the $100 billion mark for the first time. Exports of semiconductors nearly tripled to reach a record $44.82 billion.
Against this backdrop, the government earlier this week forecast Asia's fourth-largest economy to grow 3 percent in 2026. The central bank is also expected to raise its 2026 growth forecast from 2.6 percent in its economic outlook report next month.