South Korea’s central bank on Thursday raised rates for a second straight time in its bid to cool rising prices, after core inflation reading hit the highest level last month since December 2023.
The Bank of Korea (BOK) raised its base rate by +25bps to 3.00% at its Aug-26 meeting, matching market expectations and its second consecutive rate hike. The decision is also the first back-to-back increases since early 2023. The monetary tightening reflects mounting concern over persistent inflationary risks, as stronger-than-expected domestic expansion and a semiconductor boom driven by global AI demand continue to propel the export-oriented economy. To reflect the resilient growth, the BOK upgraded its 2026 GDP growth forecast significantly to +3.3% (from +2.6% previously) while projecting 2027 expansion at +2.9%.
Although the headline consumer price inflation eased to +2.8%yoy in Jul-26 (Jun-26: +3.2%yoy), core inflation accelerated again to +2.5%yoy (Jun-26: +2.4%yoy; May-26: +2.5%yoy). With both readings remaining above the central bank’s +2.0% target, policymakers utilised recent Korean won appreciation to press forward with policy tightening aimed at anchoring medium-term price stability.
The BOK’s back-to-back hike to 3.00% signals a firm pivot toward monetary tightening to contain demand-pull inflation. Backed by the resilient growth outlook and strong AI-driven export momentum, policymakers have sufficient space to prioritise price stability. The BOK may keep hawkish stance to contain inflation. MBSB in its research note said future hikes, however, will be subject to incoming data, whether inflation would stay elevated and assessing the effects of policy tightening on the economy.
