BOK raises interest rate for first time in three and a half years
Korea’s central bank lifted its benchmark rate to 2.75 percent, citing inflation, growth and stability concerns as reasons for its first increase since early 2023.
The Bank of Korea's headquarters in central Seoul as seen on Aug. 12, 2025.YONHAP
The Bank of Korea (BOK) raised its benchmark interest rate Thursday for the first time in three and a half years, citing persistent inflation, stronger economic growth and mounting financial stability risks.
The rate is now 2.75 percent, up 0.25 percentage points from the previous 2.50 percent, as decided by the Bank of Korea's Monetary Policy Board.
The central bank had kept the benchmark interest rate unchanged for more than a year after lowering it in May last year. Its previous rate hike came in January 2023, when it raised the benchmark rate from 3.25 percent to 3.50 percent as inflation surged in the aftermath of the Covid-19 pandemic.
One of the main factors behind the latest tightening move was inflation, which has remained above 3 percent.
Consumer prices rose 3.2 percent from a year earlier last month, well above the BOK's 2 percent inflation target. Inflationary pressure has been fueled by higher global oil and commodity prices following the conflict in the Middle East.
The central bank also viewed the economy as resilient enough to withstand higher borrowing costs, supported by robust semiconductor exports.
Rising household debt and the weakening won also added to the case for a rate hike. A narrower interest rate gap between Korea and the United States could help ease downward pressure on the Korean currency.
Bank of Korea Gov. Shin Hyun-song speaks during a parliamentary session at the National Assembly in Yeongdeungpo District, western Seoul, on July 9.YONHAP
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.”
Markets widely expect the central bank to raise rates one or two more times before the end of the year.
“The BOK is likely to assess inflation, the housing market and household lending before making its next move, making October the most likely timing for another rate hike,” Ahn Ye-ha, an analyst at Kiwoom Securities, said.
“However, if oil prices climb back above $100 per barrel and the won weakens sharply, the next rate increase could come sooner.”
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
