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[BUSINESS] · South Korea · 38 sources

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Bank of Korea raises interest rate to 3.00% amid inflation concerns

The Bank of Korea has raised its benchmark interest rate by 25 basis points to 3.00%, marking its second consecutive increase. This decision, made by the Monetary Policy Board, aims to preemptively address persistent inflationary pressures and rising financial stability risks, including surging housing prices in the Seoul metropolitan area and household debt, which has surpassed 2,000 trillion won.

Despite the tightening, the central bank significantly upgraded its economic outlook. Driven by a semiconductor boom fueled by global AI infrastructure demand, the Bank of Korea raised its 2024 GDP growth forecast from 2.6% to 3.3%. The 2026 growth forecast was also raised to 3.3%, and the 2027 forecast was increased to 2.9%.

Inflationary concerns remain central to the policy shift. While headline inflation eased to 2.8% in July, core inflation rose to 2.6%, its highest level since December 2023. Governor Shin Hyun-song emphasized the need for proactive measures to prevent inflation from becoming entrenched. Market analysts, including those from JP Morgan, suggest that while the central bank's dot plot indicates a potential path toward 3.25% to 3.50%, the pace of future hikes may depend on how effectively these measures stabilize prices and manage the robust economic growth.

Entities

Bank of Korea · Federal Reserve · JP Morgan · Monetary Policy Board · Nomura Securities · Seoul · Shin Hyun-song · South Korea

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