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| 2026-07-16 11:03:36
(ATTN: ADDS comments in paras 6-7, 16-19)
SEOUL, July 16 (Yonhap) -- South Korea's central bank delivered a quarter-percentage-point interest rate hike Thursday for the first time in 3 1/2 years, as widely expected, to tackle high inflation amid lingering Middle East uncertainties.
The Bank of Korea (BOK) convened a Monetary Policy Board meeting and lifted the benchmark rate from 2.5 percent to 2.75 percent.
This marked the first rate increase since January 2023, when the central bank hiked the rate by 0.25 percentage point to 3.5 percent as part of its policy normalization to jumpstart the pandemic-hit economy.
The BOK began monetary easing in October 2024 and has cut the benchmark interest rate by a cumulative 100 basis points from 3.5 percent to support economic growth. It had kept the rate unchanged since July 2025.
The rate hike was widely expected after the BOK signaled a hawkish shift in recent weeks to combat mounting inflationary pressure. At its previous rate-setting meeting in May, the central bank left the benchmark rate unchanged for the eighth consecutive meeting.
"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 BOK said in a statement. "The Board, therefore, judged that it is appropriate to raise the base rate by 25 basis points."
All seven members of the monetary policy board supported the rate-hike decision, it added.
Inflation has remained elevated as persistent Middle East tensions have kept oil prices high.
Recent government data showed that South Korea's consumer prices rose 3.2 percent in June from a year earlier, marking the steepest growth since December 2023.
The figure stayed above 3 percent for the second consecutive month after rising 3.1 percent in May.
The high inflation was attributed to the lingering impact of the Middle East war on supply chains and oil prices as fuel prices surged 24.7 percent last month, marking the sharpest growth since 35.2 percent posted in July 2022.
The Korean won also remained under pressure, staying over the 1,500-won-per-dollar level throughout June and briefly weakening to near the 1,550-won threshold on June 30 for the first time since March 2009 amid broad dollar strength and continued foreign selling of local equities.
Meanwhile, exports remained robust. South Korea's outbound shipments reached a record US$102.25 billion in June, up 70.9 percent from a year earlier and surpassing the $100 billion mark for the first time. Exports of semiconductors nearly tripled to reach a record $44.82 billion.
Against this backdrop, the government earlier this week forecast Asia's fourth-largest economy to grow 3 percent in 2026.
The central bank is also expected to raise its 2026 growth forecast from 2.6 percent in its economic outlook report next month.
The central bank said it is necessary to maintain a tight monetary policy to keep inflation in check, signaling the possibility of a further rate hike.
It said consumer prices are expected to hover around 2.7 percent, in line with its earlier forecast, but core inflation, which excludes volatile food and energy prices, is likely to come in above its previous forecast of 2.4 percent.
The BOK said it will keep a close watch on elevated exchange rate volatility, accelerating housing price increases in Seoul and surrounding areas, and rising household debt.
"It is judged that it will be necessary to continue a policy stance consistent with further rate hikes, and the Board will determine the timing and pace of further increases in the base rate while assessing the extent of inflationary pressure, the improvement trend in the domestic economy, and financial stability," it said.
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