Bank of Korea Raises Rate to 2.75% in First Hike Since 2023

The Bank of Korea raised its base interest rate by 25 basis points to 2.75% on July 16, its first hike since early 2023, in a move that was widely anticipated by economists. The decision, backed by all but one of the 37 analysts polled ahead of the meeting, was aimed squarely at shoring up a depreciating won and keeping stubborn inflation expectations in check. Following the announcement, the won strengthened, with the dollar falling to a roughly two-month low against the Korean currency, even though the move itself had been largely priced in. The tightening came against a turbulent market backdrop, as South Korean equities swung sharply during the week amid a chip-led selloff that triggered volatility controls on the Kospi and Kosdaq. The central bank has been weighing the need to defend the currency and contain imported inflation against concerns about heavily leveraged retail investing and elevated household debt. Policymakers signalled they would continue assessing the balance of risks, with markets watching for whether further increases follow in the months ahead as the bank navigates currency pressures and financial stability concerns.