Bank of Korea raises key interest rate by 0.25% points in unanimous decision

The Bank of Korea's Monetary Policy Board has raised the benchmark interest rate by 0.25 percentage points to 2.75%, a move not seen in three and a half years. This decision, reached with unanimous consent from all seven board members, signals a shift in monetary policy aimed at curbing inflation and ensuring financial stability.

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Given that the economic growth is strengthening with exports and investment as the main drivers, and inflation is expected to remain above the target level for a considerable period, while risks to financial stability persist, we judged it appropriate to raise the benchmark interest rate by 0.25 percentage points.

The board cited strengthening economic growth, driven by exports and investment, as a key factor. However, they also noted that inflation is expected to remain above the target level of 2.0% for a considerable period. Persistent risks to financial stability further informed the decision to tighten monetary policy.

Looking ahead, the Bank of Korea emphasized its commitment to monitoring economic growth while working to stabilize inflation within the medium-term target. Financial stability will also remain a key consideration in future policy operations. The board explicitly stated the need to continue with rate hikes, with the timing and pace of any further increases to be determined by assessing inflation pressures, the pace of economic recovery, and the overall financial stability landscape.

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Going forward, we will monitor economic growth and manage monetary policy to ensure inflation stabilizes at the target level over the medium term, while paying attention to financial stability.

Financial markets widely anticipate at least one more rate hike this year, given the ongoing rise in consumer prices and a robust economic upturn, particularly in the semiconductor sector. The remaining Monetary Policy Board meetings are scheduled for August, October, and November.

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We believe there is a need to continue with the rate hike stance. The timing and pace of future increases will be determined by assessing the degree of inflationary pressure, the trend of economic improvement, and the financial stability situation.