- Decision
- Raise
- Rate change
- 25 bps
- Base rate
- 1.25%
On July 16, 2026, the Monetary Policy Board of the Bank of Korea raised the Base Rate by 25 basis points to 2.75%, judging that stronger export- and investment-led growth, inflation expected to remain above target for a considerable time, and persistent financial stability risks warranted tighter policy, with the move following a May hold at 2.50% after 25 basis point cuts in February and May 2025. The Board also raised the rate on programs under the Bank Intermediated Lending Support Facility by 25 basis points to maintain consistency with the monetary policy stance. The Bank of Korea said the domestic economy had strengthened further, led by semiconductors, with this year’s growth expected to considerably exceed the May forecast, while June consumer price inflation rose to 3.2% and household loans increased substantially as housing price gains in Seoul and surrounding areas accelerated. In markets, volatility in major price variables increased significantly, with the Korean won to USD exchange rate rising on foreign stock outflows and USD strength before easing as foreign exchange supply-demand conditions improved. Globally, the Bank of Korea expects moderate growth supported by robust AI investment, but said Middle East developments and lagged pass-through from higher energy prices would keep inflation elevated for some time. All seven members supported the decision unanimously, and the Board said it would maintain a stance consistent with further rate hikes, with the timing and pace of any additional increases to depend on inflationary pressure, domestic growth and financial stability.
Rate evolution
Since late May 2025, the Bank of Korea lowered the Base Rate by 25 basis points to 2.50% and held it there through May 2026, moving from an initial easing step driven by a sharp growth downgrade, weak domestic demand and slower exports to an extended pause as inflation stayed around 2% and the Board continued to caution about household debt and foreign exchange volatility. As consumption and exports improved, helped by semiconductors and fiscal support, it for a time retained an easing bias but increasingly emphasised housing prices in Seoul and its surrounding areas, household debt, exchange-rate volatility and inflation running somewhat above earlier forecasts, shifting from a rate-cut stance to a data-dependent hold.
In the most recent decisions, stronger-than-expected growth and inflation near target kept policy unchanged in January and February 2026, and the April 2026 hold was framed around the Middle East war as a supply shock that could lift inflation while weakening growth. The Board again left the Base Rate at 2.50% in May 2026 even as it raised its 2026 growth forecast to 2.6% from 2.0% and its consumer price inflation and core inflation forecasts to 2.7% and 2.4% from 2.2% and 2.1%, respectively, citing increased inflationary pressure from the Middle East war, stronger exports, semiconductor-led investment, favourable consumption and financial stability risks, but judging that uncertainty around the conflict and its spillovers warranted staying on hold. On July 16, 2026, the Bank of Korea raised the Base Rate by 25 basis points to 2.75%, judging that growth had strengthened further on exports and investment, inflation was likely to remain above target for a considerable time and financial stability risks persisted, noting that 2026 growth was likely to considerably exceed the May forecast of 2.6% and that June consumer price inflation rose to 3.2% while core inflation held at 2.5%, and signalling a stance consistent with further rate hikes. On August 27, 2026, it raised the Base Rate by another 25 basis points to 3.00%, citing stronger-than-expected growth supported by strong exports and a recovery in domestic demand, inflation expected to remain above target for a considerable time and continued financial stability risks, as it raised its growth forecasts for 2026 and 2027 to 3.3% and 2.9%, kept its consumer price inflation forecasts at 2.7% and 2.3%, and lifted its core inflation forecasts to 2.5% for both years while signalling that the timing and pace of further increases would depend on inflation, domestic economic trends and financial stability.