Bank of Korea expected to raise interest rates this week, marking the first such move in over three years.

According to surveys by foreign media, economists expect the Bank of Korea (BOK) to implement its first interest rate hike in over three years on Thursday, with another hike before the end of the year. South Korea’s June inflation rate rose to 3.2%, hitting a 2.5-year high and exceeding the BOK’s 2% target for four consecutive months. Inflation is projected to average around 3% in the second half of this year, paving the way for the start of a tightening cycle. Strong economic growth, rising housing prices, and persistently high household debt have given policymakers room to tighten policy. South Korea’s economy grew at its fastest pace in nearly six years in the first quarter, and BOK Governor Rhee Chang-yong stated that given elevated oil prices due to Middle East conflicts, inflation is expected to stay above the BOK’s target for a considerable period, making interest rate hikes necessary. In a survey conducted from July 7 to 13, all but one of the 37 economists polled expect the BOK to raise its benchmark interest rate to 2.75% on July 16. The majority of surveyed economists (28 out of 31) forecast another rate hike by the end of the fourth quarter, pushing the policy rate to 3.00%. One economist projects the benchmark rate will reach 3.25%, while the remaining two predict it will stay at 2.75%. The median forecast shows the BOK will raise its benchmark rate to 3.25% in the first quarter of 2027 and maintain that level at least until the end of next year, a 25 basis point increase from the forecast in the May survey.