Korea Central Bank Expected to Raise Benchmark Rate to 2.75% on July 16, Survey Shows

Economists surveyed by foreign media expected the Bank of Korea to deliver its first interest-rate hike in more than three years on Thursday, with another increase anticipated before year-end. According to Jin10, South Korea's June inflation rose to 3.2%, a two-and-a-half-year high and the fourth straight month above the Bank of Korea's 2% target. The survey expected inflation to average around 3% in the second half of this year, supporting the start of a tightening cycle. The report said strong economic growth, rising home prices, and elevated household debt had given policymakers room to tighten policy. It also said South Korea's economy grew at its fastest pace in nearly six years in the first quarter. Bank of Korea Governor Rhee Chang-yong said that with high oil prices driven by conflict in the Middle East, inflation was expected to remain above the central bank's target for a considerable period, making a rate hike necessary. In a survey conducted from July 7 to July 13, 36 of 37 economists expected the Bank of Korea to raise the benchmark rate to 2.75% on July 16. Most respondents also expected one additional hike by the end of the fourth quarter, taking the policy rate to 3.00%. One economist forecast the benchmark rate would reach 3.25%, while two forecast it would remain at 2.75%. The median forecast indicated the Bank of Korea would raise the benchmark rate to 3.25% in the first quarter of 2027 and keep it at that level at least through the end of next year, which was 25 basis points higher than the forecast in the May survey.