BOK raises benchmark interest rate to 3% amid economic growth, inflation pressure

The Bank of Korea (BOK) raised its benchmark interest rate by 0.25 percentage points to 3 percent on Thursday, citing robust economic growth and rising inflation pressure.

The increase, decided by the central bank's Monetary Policy Board, is the BOK's second consecutive rate hike after it raised the rate to 2.75 percent in July. It is also the first back-to-back hike since a seven-time streak from April 2022 to January 2023, during the Covid-19 pandemic.

Strong economic growth and rising prices were cited as key factors behind Thursday's hawkish decision. Korea's GDP grew 3.7 percent on year in the second quarter of 2026, beating the BOK's earlier projection of 3 percent — a sign of resilience that the central bank worries could feed into inflation.

Much of that strength has come from the semiconductor sector, and the BOK flagged concerns that a recovery in domestic demand on the back of the chip boom could push prices higher from the demand side. That concern is already showing up in the data as core inflation, which strips out volatile energy and food prices, rose 2.6 percent on year in July, the sharpest increase in two years and seven months.

Rising household debt and continued gains in the greater Seoul area, as well as home prices, added to the case for a rate hike.

The BOK also released a revised economic outlook on Thursday, raising its growth forecast for 2026 to 3.3 percent from its previous 2.6 percent, and forecasting 2.9 percent growth for 2027. Its projection for consumer price inflation this year remained unchanged at 2.7 percent. 

BOK Gov. Shin Hyun-song previously signaled the need for tighter monetary policy, saying, “When considering inflation remaining above the target level, improving economic growth and rising financial stability risks, it is appropriate to raise the benchmark interest rate at the right time.”

After last month's rate-setting meeting, a Monetary Policy Board member also said that "the need to respond with a rate has increased," stating that concerns over financial stability risk have grown. 

Kim Myeong-sil, a researcher at iM Securities, also said the central bank had little reason to delay the hike. "The benefit of waiting until [the board's next meeting in] October to raise the rate is not significant, while the cost of delaying the increase is growing."

The BOK cut its benchmark rate by 1 percentage point between October 2024 and May 2025, then held it steady at 2.5 percent through May this year. In July, however, the board raised the rate by 0.25 percentage points, to 2.75 percent, marking its first increase in three years and six months before following up with Thursday's hike. 

Update, Aug. 27: Added information on factors contributing to the rate hike and quotes from BOK Gov. Shin Hyun-song and researcher Kim Myeong-sil.

BY LEE JIAN [[email protected]]