The Bank of Korea raised rates for the first time in a year, signaling further tightening as growth and inflation exceed projections.
The Bank of Korea (BoK) raised its policy rate by 25 basis points to 2.75%, ending a year-long pause. The move reflects concerns over real GDP growth of 3.8% year-over-year in Q1 and core inflation at 2.5% in June, both exceeding the BoK’s 2026 projections of 2.6% and 2.4%, respectively.
The central bank indicated a continued hawkish stance, suggesting further rate hikes may be necessary. This shift follows a period of steady rates, with markets now pricing in additional tightening amid persistent inflationary pressures.
The Korean Won (KRW) strengthened as the hike reduced selling pressure, while a 7.6% drop in the KOSPI index eased concerns over equity outflows. The currency remains 11% undervalued based on real effective exchange rate deviations, adding to its appeal.