Bank of Korea Raises Rates for First Time in Three and a Half Years

The Bank of Korea raised its benchmark interest rate by 0.25 percentage point to 2.75% on July 16, its first increase in three and a half years and a decisive reversal of the easing cycle that had held the rate at 2.5% for 14 months. The seven-member Monetary Policy Board voted unanimously for the move and signalled that additional hikes could follow. Policymakers pointed to inflation running above target at around 3.2% in June, a weak won hovering near the 1,500-per-dollar mark, sharply higher import and producer prices, and renewed strength in Seoul-area house prices and household debt. Governor Shin Hyun-song said price pressures are likely to stay elevated for a considerable period even as global oil prices ease, and flagged financial-stability risks from volatile exchange rates and accelerating household borrowing, partly fuelled by large bonuses from semiconductor firms flowing into the property market. Market watchers expect the base rate could reach 3.00% by year-end if the central bank follows through with another increase in the autumn. The decision underscores how the AI-driven export boom and imported inflation are reshaping South Korea's policy calculus.