Bank of Korea Raises Rates to 2.75% in First Hike in Over Three Years

The Bank of Korea raised its base rate by 25 basis points to 2.75%, its first interest-rate increase in more than three years, marking a decisive turn away from the easing cycle that had cut borrowing costs by a full percentage point since late 2024. Policymakers said economic growth was strengthening, led by exports and investment, while inflation was expected to stay above target for a considerable period and financial-stability risks persisted. The move followed a record run for the country's exports, which surged about 71% year-on-year in June on booming demand for semiconductors and AI-related components, the fastest pace since 1978. Governor Shin Hyun-song signalled the bank's existing 2.6% growth forecast for 2026 now looked too low and could be revised substantially higher in August. The central bank projected headline inflation of about 2.7% for the year and flagged uncertainty around the won, wage pressures and the pace of domestic demand recovery. Analysts said that with inflation likely to remain elevated and growth robust, further tightening is probable, noting the economy appears well placed to absorb higher rates.