BOK raises benchmark rate to 3% as inflation woes persist

The Bank of Korea (BOK) hiked its benchmark interest rate by 0.25 percentage points to 3 percent, marking the second consecutive rate increase, as inflationary pressures continue to persist due to Middle East uncertainties. In addition to the rate hike, the BOK also upgraded its growth forecast for 2026 from 2.6 percent to 3.3 percent, reflecting the ongoing strength of the economy driven by robust semiconductor exports.

The Monetary Policy Board of the central bank voted to raise the benchmark rate for the second time in a row, following the hike in July. BOK Governor Shin Hyun-song had previously indicated the need for further tightening due to concerns over inflation, and stronger-than-expected economic growth provided additional support for the rate increase.

Initial data from the second quarter showed the economy expanding by 0.6 percent, significantly surpassing the BOK's 0.2 percent forecast from May. Core inflation surged to 2.6 percent in July, marking the highest increase since December 2023, when it was recorded at 2.8 percent.