BOK Raises Benchmark Rate to 3.0% in Second Straight Hike, Returning to 3% Range

BOK raises benchmark rate to 3.0% from 2.75%

Shin calls move a preemptive response to inflation

First back-to-back hike in 3 years and 7 months

2026 growth forecast raised to 3.3%

The Bank of Korea raised its benchmark interest rate by 25 basis points to 3.0% on Aug. 27 from 2.75%, following a hike in July. The policy rate has returned to the 3% range for the first time in a year and a half.

The BOK last raised rates in consecutive meetings in January 2023, the first back-to-back increase in 3 years and 7 months. It was the fourth such instance on record, after July and August 2007, November 2021 and January 2022, and the stretch from April 2022 to January 2023. Governor Hyun Song Shin called two straight rate increases a highly unusual move that departs from normal practice.

Shin characterized the latest decision as a preemptive hike, using the term 14 times during a news conference. The BOK said stronger-than-expected economic growth had increased demand-driven inflation pressure and raised the risk that high inflation could persist. Shin said the central bank chose to act early rather than respond later with stronger measures. The comments pointed to an effort to keep inflation expectations from rising. Six of the seven Monetary Policy Board members voted for the increase, while Hwang Kun-il dissented and favored keeping rates unchanged.

The BOK said economic growth driven by the semiconductor boom would continue into next year. It raised its 2026 growth forecast to 3.3% from 2.6% in May and lifted its 2027 forecast to 2.9% from 2.1%. The central bank also said core inflation would remain elevated at 2.5% this year and next year.

Shin said preemptive action can stabilize inflation expectations faster than a delayed response, reducing the strength and duration of monetary tightening. Most research shows that can ultimately lessen the burden on growth, he added. He also said the move would help stabilize the exchange rate and slow home-price gains in the Seoul metropolitan area.

The median of the BOK's newly released dot plot stood at 3.25%, based on 10 dots. That suggested the possibility of one additional rate increase within the next six months and indicated the central bank could move at a slower pace. Shin said he expects a gradual path of increases and will assess the effects of the preemptive hike.

Shim Seong-mi and Jeong Yeong-hyo, Hankyung.com reporters smshim@hankyung.com