In a move to address inflationary pressures stemming from the US-Iran conflict, the Bank of Korea has increased its benchmark interest rate for the first time in three and a half years, aligning itself with the global trend of monetary policy tightening. The central bank raised its key seven-day repurchase rate by 0.25 percentage points to 2.75% on Thursday. This marks its first rate hike since January 2023. The bank had maintained the rate at 2.50% since May 2025, following its final rate cut that concluded an easing cycle which began in October 2024.

All 25 economists surveyed in a media poll had anticipated the Bank of Korea would raise rates in July, signaling a shift towards a more restrictive monetary policy stance. This hawkish pivot was widely expected by the market. Since the last meeting in May, Bank of Korea Governor Shin Hyun-song has made several comments indicating a tightening bias, as inflation continues to run significantly above the central bank's 2% target.

Stronger-than-expected economic growth has also afforded the central bank room to tighten policy. South Korea's exports in June surged 70.7% compared to the same period last year, achieving the most robust growth in nearly 50 years, driven by sustained global demand for chips amid an artificial intelligence construction boom. Earlier this week, the South Korean government revised its economic growth and inflation forecasts for the current year upwards, citing robust chip exports and fiscal stimulus measures.