South Korea's central bank tightened monetary policy, raising interest rates for the second straight meeting as it lifted its projections for economic growth and core inflation this year.
In a closely watched decision, the Bank of Korea on Thursday increased its benchmark seven-day repurchase rate by a quarter-percentage point to 3.00%.
BOK Gov. Shin Hyun-song said at a press conference that the bank acted "preemptively" to prevent inflationary pressures from spreading, as inflation is expected to remain above its 2% annual target for a considerable time.
The decision wasn't unanimous, with one of the seven board members calling for the rate to remain unchanged.
Analysts polled by The Wall Street Journal ahead of the decision had been split over whether policymakers would hike or hold. Of the 31 surveyed, 16 forecast another increase while 15 projected a pause.
Both camps have a case.
South Korea's robust economic growth and above-target inflation justify a hawkish stance, but it is also reasonable for policymakers to take a breather to gauge the impact of last month's hike--the first in more than three years--especially given still-soft recovery in consumer spending.
Most analysts, including some of the more dovish-minded, expect yet another rate increase in the coming months. The central bank's upgraded growth forecasts will likely reinforce those expectations.
The BOK said Thursday that it now expects the economy to expand 3.3% this year, faster than its May projection of 2.6%. It forecasts the economy will grow 2.9% next year, stronger than its earlier estimate of 2.1%.
South Korea--home to memory-chip giants Samsung Electronics and SK Hynix--has been one of the winners of the global artificial-intelligence build-out. Economic growth has strengthened on brisk AI-fueled demand for exports of semiconductors and electronics.
That boost has helped shield Korea from external shocks but is also carving out a "K-shaped" pattern of growth, in which technology industries are booming while non-tech sectors are stalling. Policymakers are closely watching whether spillovers into wages and prices will accelerate inflation.
The BOK said headline inflation is projected to average 2.7% in 2026 and 2.3% in 2027, unchanged from its earlier estimates.
Gov. Shin said the BOK now expects core inflation, which excludes volatile food and energy prices, to average 2.5% in both 2025 and 2026, above its previous estimates. The measure, closely watched by policy makers as a gauge of underlying inflation, has trended higher in recent months.
The BOK chief said further rate increases are likely, citing the bank's updated dot plot showing a median rate of 3.25% over the next six months. He reiterated that the pace of tightening would depend on inflation and growth data before the October rate-setting meeting.
Capital Economics senior Asia economist Gareth Leather said he expects the BOK to take a more gradual approach to policy tightening in the coming months, as it "will be under less pressure to raise rates further" after its back-to-back rate hikes, particularly with the Korean won strengthening.
Dave Chia, an economist at Moody's Analytics, described the BOK board's consecutive rate increases as a preemptive move against rising prices. "The board is acting on where inflation is heading, not where it is," Chia said, adding that he expects one more hike from the BOK this year.
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