South Korea's central bank raised interest rates for the first time in over three years, joining its global peers to tighten policy in the face of inflation fueled by the U.S.-Iran conflict.
Bank of Korea Gov. Shin Hyun-song said that the bank would tighten policy further in coming months, citing stronger-than-expected economic growth and inflation.
"We will respond until we are confident that inflation is converging stably to the target," Shin said, adding that the pace of further rate hikes would depend on incoming data.
The BOK increased its benchmark seven-day repurchase rate by a quarter-percentage point to 2.75% on Thursday. It last raised rates in January 2023.
The central bank had held the rate at 2.50% since May 2025, when it delivered its last rate cut and ended the easing cycle that began in October 2024.
All 25 economists surveyed by The Wall Street Journal had expected a rate hike marking a pivot toward tighter monetary policy.
The shift was widely expected in wake of repeated remarks by BOK Gov. Shin since the bank's last meeting in May signaling a tightening bias, and as inflation remained well above the central bank's 2% target.
Stronger-than-expected economic growth has also given the central bank room to tighten policy. South Korea's exports in June rose around 71% compared with the same period year earlier, the strongest in nearly 50 years, as the global artificial-intelligence build-out continued to fuel demand for chips.
BOK Gov. Shin said Thursday he expects the country's economic growth will be well above the central bank's May forecast of 2.6%, while core inflation is also likely to beat its earlier estimate of 2.4%.
Earlier this week, the government raised its growth and inflation forecasts for this year, citing robust chip exports and fiscal stimulus.
Gross domestic product is projected to grow 3.0% in 2026, stronger than the 2.0% forecast in January, the finance ministry said. The ministry now expects inflation to average 2.6% this year, above its earlier estimate of 2.1%.
Analysts say the central bank is under growing pressure to raise interest rates, partly because the Korean won's weakness against the dollar has kept inflation elevated.
Also, risks to financial stability from a resurgence in household debt and rising Seoul home prices strengthen the case for higher borrowing costs, analysts say.
The Bank of Korea could deliver three more 25-basis-point rate hikes through the second quarter of 2027 to take its base rate to 3.50%, Deutsche Bank economist Juliana Lee said. She cited the BOK's reference to maintaining "a policy stance consistent with further rate hikes" amid stronger growth, sticky above-target inflation, foreign-exchange volatility, faster household debt growth and renewed housing market pressure.
"The July statement confirms that the BOK is not done," said the note.
Write to Kwanwoo Jun at kwanwoo.jun@wsj.com
(END) Dow Jones Newswires
July 16, 2026 02:25 ET (06:25 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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