Korea Interest Rate

Bank of Korea raises rates for the first time since 2023

Bank hikes, as expected: At its meeting on 16 July, the Bank of Korea (BOK) decided to raise the base rate by 25 basis points to 2.75% after standing pat for over a year. The hike was the first since January 2023 and matched market expectations.

Higher inflation drives the move: The Central Bank's hike was primarily driven by domestic factors such as inflation, which rose to 3.2% in June due to the Iran energy price shock fanning fuel and agricultural prices. Moreover, the Bank expects inflation to remain high in the near term. Additionally, robust growth in the domestic economy—led by strong exports and investment in the semiconductor sector—and the need to address financial stability risks—including rising housing prices and household debt—underpinned the policy tightening.

More hikes in the pipeline: Looking ahead, the Bank of Korea signaled the likelihood of additional hikes in the coming months, although the timing and pace of future increases will be data-dependent. In line with this, the vast majority of our panelists expect another 25 basis point hike in Q4, while most of the rest see more than one rate increase by year-end, and one anticipates a hold. The Bank will reconvene on 27 August.

Panelist insight: Commenting on the outlook, Ho Woei Chen, analyst at United Overseas Bank, stated: “Factoring in the hawkish rhetoric from BOK, we now expect another 2x25bps rate hike into 2027. In terms of timing, the rate hikes are likely to be delivered in Oct 2026 and Jan 2027, bringing the base rate to 3.25%, up from our previous forecast of 3.00%. We do not rule out BOK bringing forward the next tightening to Aug.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Korean interest rate projections for the next ten years from a panel of 22 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for Korean interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our Korean interest rate projections.

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