Bank of Korea Raises Rates to 2.75% in First Hike in Over Three Years

The Bank of Korea raised its benchmark interest rate on July 16 for the first time in three and a half years, lifting the seven-day repurchase rate by a quarter percentage point to 2.75 percent in a unanimous decision. The move ended 14 consecutive months without a change and effectively reversed the easing cycle that began in October 2024, marking the bank's first hike since January 2023. Policymakers acted against a backdrop of stubborn inflation, which reached 3.1 percent in May, well above the 2 percent target, driven partly by higher oil prices tied to Middle East tensions and a resilient export sector. Governor Shin Hyun-song signaled that further increases could follow, with many economists expecting at least one more move before year-end, and said the bank's earlier 2.6 percent growth forecast now looked too low given a powerful semiconductor-led export boom. South Korea's exports topped $100 billion in a single month for the first time in June. The central bank also flagged risks from a weak won, which has hovered near multi-year lows, elevated household debt and rising home prices. Higher rates make won-denominated assets more attractive but add to borrowing costs for households and businesses.