▲ The Bank of Korea (BOK) Monetary Policy Board meeting takes place at the central bank in Seoul on July 16, 2026. (Pool photo) (Yonhap)
▲ Containers are stacked at a port in the western coastal city of Pyeongtaek, some 60 kilometers south of Seoul, in this file photo from July 1, 2026. (Yonhap)

By Kim Boram

SEOUL, July 23 (Yonhap) -- As better-than-expected second-quarter growth puts the South Korean economy on track for annual growth of 3 percent or more this year, expectations are growing that the Bank of Korea (BOK) could raise the benchmark interest rate again at its next monetary policy meeting.

The country's real gross domestic product (GDP) -- a key measure of economic growth -- rose 0.6 percent in the April-June period from three months earlier, according to advance data from the BOK.

The figure exceeded the BOK's May forecast of 0.2 percent growth, while it slowed from the previous quarter's 1.8 percent, the strongest quarterly expansion since the third quarter of 2020.

From a year earlier, the Korean economy grew 3.7 percent in the second quarter, slightly below the first quarter's 3.8 percent growth.

Real gross domestic income (GDI), which reflects changes in terms of trade, rose 15.6 percent on-year in the second quarter, marking the highest level since the first quarter of 1988, when it reached 16.4 percent.

Analysts said the second-quarter readings show that the Korean economy maintained strong growth momentum despite the base effect from strong first-quarter growth and lingering Middle East concerns, with balanced contributions by domestic demand and exports.

"In the first quarter, robust exports accounted for most of GDP growth, but in the second quarter, domestic demand and net exports contributed 0.3 percentage point each to quarterly growth," said Park Sang-hyun, an analyst from iM Securities Co., in a commentary.

"Upbeat GDI, expected to grow faster than GDP for a while, will continue supporting investment and consumption."

Given the stronger-than-expected growth, the BOK expected Asia's fourth-largest economy to grow 3 percent in 2026 as long as it posts no worse than a 0.1 percent quarter-on-quarter contraction in both the third and fourth quarters.

If realized, annual GDP growth of 3 percent would mark the first such expansion since 2021, when Asia's fourth-largest economy grew 4.5 percent.

The central bank said the economy could expand by more than 3 percent, although the resurgence of Middle East tensions would place downward pressure on the economy through higher oil prices in the second half.

"In the past, a war in the Middle East could have led to a sharp decline in the growth rate, but currently, exports are still far outpacing imports," said Lee Dong-won from the BOK's statistics department during a press conference.

"While the growth rate may slow depending on the situation in the Middle East, it is unlikely that the economy will post negative growth."

The central bank is scheduled to revise its earlier economic forecast next month.

The latest data have reinforced expectations that the BOK can lift the base rate again in August following a 25 basis point hike at its recent rate-setting meeting last week, citing increasing inflationary pressure and solid economic growth.

"The BOK cited expanding demand-side pressure and a cost-push shock when raising the benchmark rate at the July monetary policy meeting. And today's GDP and GDI data support the central bank's assessment," said Ha Keon-hyeong, an economist from Shinhan Securities Co.

"If an oil price surge continues until its next meeting in August, the BOK could deliver a back-to-back rate hike."

However, some remained cautious as it is too early to expect a second consecutive rate increase based only on GDP data, which had been partly anticipated due to strong exports.

"I think the central bank would raise the interest rate in October, instead of August," said Ahn Ye-ha, an analyst from Kiwoom Securities Co. "Next month's inflation data is more important. If core inflation rises sharply, that could move the BOK."

After last week's rate-hike meeting, Gov. Shin Hyun-song said all options remain open regarding further monetary policy.

"It appears that the inflation rate will remain significantly above the target," he said. "In conducting monetary policy, we will continue to take action until we are confident that the inflation rate is converging steadily toward our target level."

The BOK's next rate-setting meeting is slated for Aug. 27.

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