Bank of Korea Raises Rates for First Time Since 2023 — Update

By Kwanwoo Jun

South Korea's central bank raised its base rate for the first time in three-and-a-half years, joining global peers in tightening monetary policy to counter inflationary pressures fueled by the U.S.-Iran conflict.

The Bank of Korea increased its benchmark seven-day repurchase rate by a quarter-percentage point to 2.75% on Thursday. It last delivered a rate hike in January 2023.

The central bank had held the rate at 2.50% since May 2025, when it delivered its last rate cut and paused an easing cycle that began in October 2024.

All 25 economists surveyed by The Wall Street Journal had expected the bank to raise the rate in July, marking a pivot toward tighter monetary policy.

The hawkish shift was widely expected following repeated remarks by BOK Gov. Shin Hyun-song since the previous meeting in May signaling a tightening bias, with inflation remaining well above the central bank's 2% target.

South Korea's headline consumer inflation reached a 30-month high of 3.2% in June, exceeding 3% for a second consecutive month.

Stronger-than-expected economic growth has also given the central bank room to tighten policy. South Korean exports rose 70.7% from a year earlier in June, the strongest growth in nearly 50 years, as the global artificial-intelligence build-out continued to fuel demand for chips.

Earlier this week, the Seoul government raised its economic growth and inflation forecasts for this year, citing robust chip exports and fiscal stimulus.

Gross domestic product is projected to grow 3.0% in 2026, stronger than the 2.0% forecast in January, the finance ministry said in its semiannual outlook. The ministry expects inflation to average 2.6% this year, faster than its earlier estimate of 2.1%.

Analysts say the central bank is under growing pressure to raise interest rates, partly because persistent weakness in the South Korean won against the U.S. dollar has kept inflation elevated.

In addition to the won's weakness, financial stability risks stemming from a resurgence in household debt and continued increases in Seoul home prices strengthen the case for keeping borrowing costs higher, analysts say.

Further complicating the central bank's policy outlook is the AI boom, which has boosted South Korea's exports and stock market.

HSBC economist Jin Choi sees three channels through which export-led growth could spill over into the broader economy--wages, capital expenditure and fiscal policy--but cautions that each comes with important implications for inflation.

"Broader spillovers could firm demand-pull inflation, pushing the BOK for a deeper hiking cycle," Choi wrote in a recent note.

Economists at Citigroup said in a note prior to Thursday's decision that they expected the Bank of Korea to initiate a gradual tightening cycle with 25-basis-point rate hikes each quarter through the first half of 2027, starting in July and October this year and continuing in January and April next year.

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

July 15, 2026 21:33 ET (01:33 GMT)