By Cynthia Kim and Jihoon Lee
SEOUL, Aug 27 (Reuters) – The Bank of Korea on Thursday raised its benchmark interest rate by a quarter percentage point to 3.00%, as expected, delivering a second straight increase as inflation stays above target and financial stability risks persist.
The seven-member monetary policy board at the BOK voted to raise the seven-day repurchase rate to the highest level since February 2025, a decision predicted by 18 of 35 economists surveyed in a Reuters poll.
The BOK also revised up this year’s growth estimate to 3.3% from the 2.6% projected in July. It left this year’s inflation forecast unchanged at 2.7%.
The median expectation is now for one more rate hike in the first quarter of 2027 and then a hold through to at least the end of next year, as analysts expect policymakers to put more emphasis on managing financial stability amid an overheating housing market while strong growth feeds into underlying inflation.
“I now think the terminal rate is 3.50%, higher than my earlier projection of 3.25% as the economy could expand as much as 3.5% this year,” said Kong Dong-rak, an economist at Daishin Securities.
Local bond markets had already priced in much of Thursday’s move, and yields reflect a market bracing for a longer tightening campaign.
Immediately after the rate decision, South Korea’s policy-sensitive treasury bond futures extended losses to fall as much as 0.28 points to 103.04.
The six-month dot plot, set to be updated for the first time since May, will also be closely watched for clues on the terminal rate and whether the tightening cycle extends into next year.
Governor Shin Hyun-song will hold a news conference at 0210 GMT.
(Reporting by Cynthia Kim; Editing by Sam Holmes)
Comments