Bank of Korea Delivers Second Consecutive Rate Hike as Core Inflation Remains High

The Bank of Korea has announced its second consecutive increase in interest rates, a move aimed at curbing persistent price growth. This decision follows the release of core inflation data, which reached its highest point since December 2023 last month.

In its latest monetary policy meeting, the Bank of Korea raised its policy rate by 25 basis points, setting it at 3%. This brings the rate to its highest level since January 2025, aligning with market expectations.

The central bank's action comes as core inflation in Asia's fourth-largest economy ascended to 2.6% in July. Although the overall inflation rate saw a slight decrease to 2.8% in July, it had been on an upward trajectory every month from February to June, a period coinciding with the onset of the Iran war.

In its previous assessment, the Bank of Korea indicated the necessity of maintaining a policy stance that supports further rate increases. This is due to ongoing elevated cost pressures and a continued acceleration in housing prices across Seoul and its surrounding regions.

Reports from the South Korean news outlet Asia Business Daily highlight that housing prices in Seoul experienced a month-on-month increase of 2.5% in June, marking the most significant surge in five years.

Furthermore, the Bank of Korea anticipates robust growth in both exports and domestic demand. This positive outlook is partly attributed to the positive ripple effects stemming from the country's thriving semiconductor sector.

Consequently, the central bank projects that inflation will likely remain above its 2% target for an extended period.

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English Translation:

South Korea's central bank has implemented its second consecutive interest rate increase in an effort to temper rising prices. This decision comes after the core inflation reading for the previous month reached its highest level since December 2023.

The Bank of Korea raised its benchmark rate by 25 basis points, bringing it to 3%, the highest level since January 2025 and in line with predictions.

The hike occurs as core inflation in Asia's fourth-largest economy climbed to 2.6% in July. While the headline inflation rate in July cooled slightly to 2.8%, it had been increasing monthly from February until June, a period that began with the start of the Iran war.

In its prior meeting, the BOK stated that it was essential to "continue a policy stance consistent with further rate hikes," given the persistent elevated cost pressures and the continued acceleration of housing prices in Seoul and its adjacent areas.

According to South Korean news outlet Asia Business Daily, housing prices in Seoul surged by 2.5% month-on-month in June, representing its largest increase in five years.

The BOK also noted that both exports and domestic demand are expected to exhibit strong growth, bolstered by the spillover effects from the nation's semiconductor industry.

As a result, inflation is forecasted to stay above its 2% target for a considerable duration, the central bank stated.