Bank of Korea Raises Rate to 3% in Second Straight Hike
South Korea's central bank lifts its policy rate to 3.00%, the highest since early 2025, as inflation stays above target and housing pressures persist.
The Bank of Korea (BOK) delivered its second consecutive quarter-point rate increase on Thursday, lifting its benchmark seven-day repurchase rate to 3.00% — the highest level since February 2025. The decision, widely anticipated by markets, was backed by the bank's seven-member monetary policy board.
The move comes as inflation remains above the central bank's target and financial stability concerns mount, particularly in the housing market. The BOK also revised its growth forecast for this year upward to 3.3%, from 2.6% projected in July, while keeping its inflation outlook unchanged at 2.7%.
Analysts now expect one more rate hike in the first quarter of 2027, followed by a hold through at least the end of next year. The revised outlook reflects expectations that policymakers will prioritize financial stability amid an overheating housing market, even as strong growth feeds into underlying price pressures.
"I now think the terminal rate is 3.50%, higher than my earlier projection of 3.25%," said Kong Dong-rak, an economist at Daishin Securities, citing the possibility of the economy expanding as much as 3.5% this year.
Bond markets had largely priced in Thursday's move, and yields suggest investors are bracing for a prolonged tightening cycle. Immediately after the decision, policy-sensitive treasury bond futures extended losses, falling as much as 0.28 points to 103.04.
Attention now turns to the BOK's updated dot plot — the first since May — which will offer clues on the terminal rate and whether the tightening cycle will extend into next year. Governor Shin Hyun-song is scheduled to hold a news conference later today.