By Cynthia Kim and Jihoon Lee
SEOUL, July 16 (Reuters) – South Korea’s central bank raised its benchmark interest rate for the first time in three and a half years to 2.75% on Thursday as was widely expected to stabilise a slumping won and counter persistent inflationary pressure.
The seven-member monetary policy board at the Bank of Korea voted to raise the seven-day repurchase rate by 25 basis points, a decision accurately predicted by all but one of 37 economists surveyed in a Reuters poll.
Asia’s fourth-largest economy has been rebounding faster than expected this year thanks to a boom in semiconductor exports and investment, even as the local currency remains pressured, with the won weakening 3.4% against the greenback.
Gross domestic product expanded 1.8% in the first quarter, the fastest rise in nearly six years, prompting the government to raise growth forecast to a five-year high of 3.0% for this year on the back of a global semiconductor boom.
The rate hike aligns the BOK closely with regional neighbour the Bank of Japan, which recently raised its own benchmark rate to a 31-year.
Central banks in Australia, New Zealand, Indonesia and the Philippines have already tightened policy.
With the headline inflation figure at a 2-1/2-year high in South Korea, a majority of analysts see the BOK delivering at least one more rate hike before the end of this year to take the policy rate to 3.00%.
“This move has effectively been well telegraphed, as the BOK already signaled at the May meeting — through an upward revision to the K-dot plot — that a rate hike was imminent,” said Stephen Lee at Meritz Securities, referring to the bank’s forward guidance chart from May that revealed a bias towards taking rates higher to 3% in the next six months.
“Alongside the July rate hike, the BOK is likely to indicate in its monetary policy statement that there is significant upside pressure on its economic outlook relative to the May forecast.”
Median forecasts showed the BOK would raise its key rate to 3.25% in the first quarter of 2027 and keep it there until at least the end of next year.
Governor Shin Hyun Song will hold a press conference at 0210 GMT, which will be livestreamed via YouTube.
(Reporting by Cynthia Kim and Jihoon Lee; Editing by Sam Holmes)
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