▲ A woman shops at a supermarket in Seoul on July 16, 2026. (Yonhap)
▲ The Bank of Korea (BOK) Monetary Policy Board meeting takes place at the central bank in Seoul on July 16, 2026. (Pool photo) (Yonhap)

By Kim Boram

SEOUL, July 16 (Yonhap) -- Following the Bank of Korea's (BOK) first interest rate hike in 3 1/2 years Thursday, analysts expect the central bank to remain on a hawkish path in the coming months to bring mounting inflation under control.

At a Monetary Policy Board meeting, the BOK lifted the benchmark rate from 2.5 percent to 2.75 percent, marking the first rate increase since January 2023 as part of its policy normalization after keeping borrowing costs low to jumpstart the pandemic-hit economy. The decision was unanimous.

The rate hike was widely expected after the BOK signaled a hawkish shift in recent weeks to combat escalating prices amid a volatile local currency and robust export-driven economic growth.

The central bank signaled the possibility of a further rate hike, saying it will determine the timing and pace of further increases.

Gov. Shin Hyun-song stressed that the central bank takes current inflation seriously and will take action with all options open.

"It appears that the inflation rate will remain significantly above the target," he said during a press conference after the monetary policy meeting. "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."

He cited demand-side inflationary pressure as a key upside risk, which is strengthening as robust exports are expected to boost household income and, in turn, consumption.

At the same time, elevated energy prices stemming from lingering Middle East uncertainties are likely to persist for some time, he added.

Strong economic growth driven by robust exports of semiconductors and investment for artificial intelligence (AI) infrastructure also provide a solid backdrop for further monetary tightening.

"All the components of gross domestic product are strong enough. Exports, investment and consumption are solid," Shin said. "In May, we forecast 2.6 percent growth, but it is too low. I think we will have a chance to raise it substantially in August."

Market analysts also expect the BOK to remain hawkish in the ensuing meetings as all economic indicators are pointing in one direction.

"Inflation is running well above the 2 percent target and will recede only as oil prices ease, a prospect still hostage to the conflict in the Middle East," said Moody's in a commentary, adding that the weak won, resurgent household debt and rising Seoul house prices strengthen the case for higher rates.

"And with growth booming on the back of semiconductor exports, the Monetary Policy Board has room to tighten further."

Some economists anticipated the central bank will deliver another rate hike later this year, with upcoming economic data, including second-quarter GDP figures due next week and July inflation data to be released next month, in focus.

"While the BOK is concerned about secondary ripple effects from high oil prices and demand-side inflationary pressures stemming from rising incomes, neither of these factors has yet been clearly confirmed," said Lim Jae-kyun, an analyst at KB Securities Co. "We expect an additional rate hike in October rather than a second consecutive hike in August."

The BOK's next rate-setting meeting is slated for Aug. 27, when the central bank will also publish its growth forecast for 2026.

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