Bank of Korea Raises Interest Rates to 2.75 Percent

The Bank of Korea raised its benchmark seven-day repurchase rate by 0.25 percentage points to 2.75 percent on July 16. This action marks the first interest rate hike since early 2023, ending a monetary policy pause that lasted more than a year.

The decision follows a period of stubborn inflation, which hit a 30-month high of 3.2 percent in June and exceeded the bank's 2 percent target for four consecutive months. Officials cited rising energy costs linked to the U.S.-Israeli conflict with Iran and the weakening South Korean won as primary drivers of these price increases. The hike also aims to narrow the interest rate gap with the United States Federal Reserve to reduce foreign exchange volatility and prevent further downward pressure on the won.

Strong economic growth, fueled by a global artificial intelligence boom that pushed chip exports up over 70 percent in June, provided the necessary cushion for the tightening. Consequently, the South Korean government increased its 2026 GDP growth forecast to 3.0 percent. The central bank indicated that further increases may be necessary to address rising household debt, escalating Seoul real estate prices, and overall risks to financial stability.