- Decision
- Raise
- Rate change
- 25 bps
- Base rate
- 3%
The Monetary Policy Board of the Bank of Korea (BOK) raised the Base Rate by 25 basis points to 3.00% in August, citing stronger-than-expected growth, inflation expected to remain above target for a considerable time and continuing financial stability risks. The rate had been held at 2.50% from August 2025 through May 2026 before a 25-basis-point increase to 2.75% in July. The BOK left the rate on programs under the Bank Intermediated Lending Support Facility unchanged at 1.25%. Consumer price inflation eased to 2.8% in July while core inflation rose, and the BOK projected robust growth of 3.3% this year and 2.9% next year, supported by semiconductor-led exports and investment and a strengthening consumption recovery. Household loans increased substantially while housing prices in Seoul and surrounding areas continued to rise rapidly. The Korean won strengthened significantly against the US dollar as foreign exchange supply-demand conditions improved and the dollar weakened. Globally, robust artificial intelligence investment is supporting moderate growth, while higher energy prices and Middle East tensions are expected to keep inflation elevated. The Board will determine the timing and pace of further Base Rate increases based on inflation, domestic growth and financial stability developments.
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.