BOK Raises Benchmark Rate to 2.75% From 2.50%, First Hike in 3 1/2 Years

The Bank of Korea raised its benchmark interest rate to 2.75% from 2.50% at a monetary policy meeting on July 16, marking its first shift to tightening in 3 1/2 years.

The move comes as South Korea’s economic growth has strengthened on robust semiconductor demand and inflation has stayed elevated amid the war in the Middle East. In its second-half economic growth strategy announced on July 14, the government projected real gross domestic product growth of 3.0% this year. That is 0.4 percentage point above the BOK’s May forecast of 2.6%.

Consumer inflation rose from 2.0% in January and February to 2.2% in March and 2.6% in April. It then topped the central bank’s 2.0% target for a second straight month, reaching 3.1% in May and 3.2% in June. In a report on its inflation-targeting framework released on June 17, the BOK projected consumer inflation would remain around 3% in the second half of this year. The living-cost index, which reflects prices felt by consumers, also remained elevated at 3.4% in June.

The won-dollar exchange rate has edged lower recently but is still trading in the 1,480 won per dollar range.

Shim Seong-mi, Hankyung.com reporter smshim@hankyung.com