South Korea raises key rate again, upgrades 2026 growth forecast

The BOK’s Monetary Policy Board approved the increase at its regular rate-setting meeting in Seoul, taking the benchmark rate to its highest level since January 2025.

The latest decision follows the central bank’s first rate hike in three and a half years in July. It also marked the first back-to-back rate increases since January 2023, when the BOK raised rates at seven consecutive meetings beginning in April 2022.

The board said preemptive action was necessary to prevent inflationary pressures from becoming more widespread while continuing to monitor risks to financial stability.

“It is important to prevent inflationary pressures from becoming widespread through preemptive action, and it is also necessary to continue paying attention to financial stability risks,” the board said in a statement.

The BOK added that future decisions on the timing and pace of additional rate increases would depend on developments in inflation, the domestic economy and financial stability.

Six of the seven board members supported Thursday’s rate hike. Hwang Kun-il dissented, proposing that the central bank leave the benchmark rate unchanged at 2.75 percent.

The BOK has maintained a hawkish stance amid renewed inflationary pressures linked to higher oil prices, heightened uncertainty in the Middle East and a stronger-than-expected economic recovery.

South Korea’s consumer prices rose 2.8 percent in July from a year earlier, government data showed. Although inflation fell below the 3 percent threshold for the first time in three months, it remained significantly above the BOK’s 2 percent target.

Core inflation, which excludes volatile food and energy prices, increased 2.6 percent year on year in July - the fastest pace since December 2023, when it rose 2.8 percent.

International crude oil prices have also remained elevated amid escalating military tensions between the United States and Iran, adding to concerns over future inflation.

Alongside the rate decision, the central bank significantly upgraded its outlook for the South Korean economy.

The BOK raised its forecast for economic growth in 2026 to 3.3 percent, up from its previous projection of 2.6 percent. It forecast growth of 2.9 percent in 2027.

Asia’s fourth-largest economy expanded 3.8 percent in the first half of 2026, putting it on course to record annual growth of 3 percent or more for the first time in five years.

The South Korean government also raised expectations for the economy, forecasting 3 percent growth for 2026 last month.

Despite the stronger growth outlook, the BOK left its inflation forecasts unchanged, projecting consumer price growth of 2.7 percent in 2026 and 2.3 percent in 2027.

Earlier, Qazinform reported South Korea added 292,000 wage jobs in the first quarter, led by welfare and hospitality.