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

The Bank of Korea raised its benchmark interest rate by 25 basis points to 2.75% on Thursday, marking its first hike in three and a half years. The decision by the Monetary Policy Committee was unanimous.

Policymakers said the move was aimed at curbing inflation, which has been running above the central bank's 2% target, while also steadying the Korean won against continued volatility in currency markets.

The central bank signaled that further tightening is likely in the months ahead, pointing to the strength of the domestic economy as room for additional increases. Officials suggested the current cycle may not be over.

Exports underscored that momentum. June shipments jumped 71% year-on-year in dollar terms, the fastest pace of growth since 1978, reflecting robust global demand for Korean goods.

The combination of firm growth and elevated price pressures has shifted the central bank away from the accommodative stance it maintained through recent years, when it prioritized shielding households and businesses from higher borrowing costs.

Economists will now watch upcoming inflation and trade data for clues on the pace of future moves, as well as the won's response to the wider gap between domestic and overseas monetary conditions.