South Korea's central bank is expected to raise interest rates this week for the first time in over three years.

Odaily reported that economists expect the Bank of Korea (BOK) to implement its first interest rate hike in over three years on Thursday, with another increase expected before the end of the year. South Korea's inflation rate rose to 3.2% in June, hitting a two-and-a-half-year high and exceeding the BOK's 2% target for the fourth consecutive month. The average inflation rate for the second half of the year is expected to be around 3%, paving the way for the start of a tightening cycle. Strong economic growth, rising housing prices, and high household debt provide policymakers with room to tighten policy. South Korea's economy grew at its fastest pace in nearly six years in the first quarter. BOK Governor Rhee Chang-yong stated that, given the high oil prices triggered by the Middle East conflict, inflation is expected to exceed the central bank's target for a considerable period, making a rate hike necessary.

In a survey conducted from July 7 to 13, all but one of 37 economists predicted that the BOK would raise its benchmark interest rate to 2.75% on July 16. The majority of surveyed economists (28 out of 31) expect one more rate hike by the end of the fourth quarter, bringing the policy rate to 3.00%. One economist predicted the benchmark rate would reach 3.25%, while the remaining two forecast it would stay at 2.75%. The median forecast indicates that the BOK will raise the benchmark rate to 3.25% in the first quarter of 2027 and maintain that level at least until the end of next year, representing an increase of 25 basis points compared to the forecasts in the May survey. (Jin Shi)