the Bank of Korea's monetary policy committee on the 16th raised the base rate by 0.25 percentage point to 2.75% from 2.5% per year. The rate hike is the first in 3 years and 6 months since Jan. 2023 (3.25%→3.5%). The move aims to slow the pace of consumer price increases stemming from the Middle East war.
Bank of Korea (BOK) said in the monetary policy direction released after the rate decision that "it is judged necessary to continue the rate-hiking stance going forward." It is seen as leaving the door open to additional hikes beyond a single increase. Bank of Korea (BOK) also said, "The timing and pace of (rate) additional hikes will be decided while checking the degree of inflationary pressure, the trend of economic improvement, and financial stability conditions."
The reason Bank of Korea (BOK) is considering even additional rate hikes is that consumer prices may remain elevated for a considerable period. Bank of Korea (BOK) expected that "this year's core inflation (excluding food and energy prices) will be somewhat higher than the 2.4% projected in May." Bank of Korea (BOK) said, "Although international oil prices have fallen, the effects of previously elevated expense and the exchange rate are persisting, and demand-side pressure from income improvement is gradually expanding, so prices will remain high for a considerable period."
It added, "We judge that uncertainty is high regarding the future inflation path in connection with movements in international oil prices and the exchange rate, the pace of domestic demand improvement, and the extent of the spread of wage increases."