Bank of Korea raises interest rates for first time in 3½ years amid inflation concerns

The decision, which was widely anticipated by financial markets, came after the BOK's Monetary Policy Board voted unanimously to lift the policy rate from 2.5 percent to 2.75 percent.

The move marks a reversal after a prolonged period of monetary easing. The central bank began cutting interest rates in October 2024, lowering the benchmark rate by a total of 100 basis points from 3.5 percent to support economic growth. It had kept rates unchanged since July 2025.

"Along with economic growth having strengthened, led by exports and investment, inflation is expected to remain above the target level for a considerable period of time, and financial stability risks also persist," the central bank said. "The Board, therefore, judged that it is appropriate to raise the base rate by 25 basis points."

The BOK added that all seven members of the Monetary Policy Board supported the decision.

Inflationary pressures have remained elevated, driven largely by sustained high oil prices linked to tensions in the Middle East. Government data showed consumer prices rose 3.2 percent in June from a year earlier, the fastest annual increase since December 2023 and the second consecutive month inflation remained above the 3 percent level.

Fuel prices surged 24.7 percent in June, reflecting higher global energy costs and ongoing supply chain disruptions.

The Korean won also came under pressure during June, trading above 1,500 won per U.S. dollar throughout the month and briefly weakening to nearly 1,550 won per dollar on June 30, its weakest level since 2009, amid broad U.S. dollar strength and continued foreign selling of domestic equities.

Despite inflation concerns, South Korea's export sector remained resilient. Overseas shipments climbed 70.9 percent year over year in June to a record 102.25 billion US dollars, surpassing the 100 billion US dollars mark for the first time. Semiconductor exports nearly tripled from a year earlier to a record 44.82 billion US dollars.

The government this week projected Asia's fourth-largest economy to expand 3 percent in 2026, while the central bank is also expected to revise upward its economic growth forecast in its next outlook report.

Looking ahead, the BOK signaled that further monetary tightening remains possible if inflationary pressures persist. The central bank expects headline inflation to average around 2.7 percent, while core inflation, which excludes food and energy prices, is projected to exceed its previous forecast of 2.4 percent.

Earlier, Qazinform reported South Korea adds 63,000 jobs in June as employment rebounds.