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

Odaily reported that economists expect the Bank of Korea to implement its first interest rate hike in over three years on Thursday, with another increase before the end of the year. South Korea's inflation rate rose to 3.2% in June, the highest in two and a half years, marking the fourth consecutive month above the central bank's 2% target. The average inflation rate for the second half of this year is expected to hover 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, and Bank of Korea 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 between July 7 and 13, all but one of the 37 economists expected the Bank of Korea to raise its benchmark interest rate to 2.75% on July 16. The majority of surveyed economists (28 out of 31) predicted an additional rate hike by the end of the fourth quarter, bringing the policy rate to 3.00%. One of them forecast the benchmark rate would reach 3.25%, while the other two predicted it would remain at 2.75%. According to the median forecast, the Bank of Korea is expected to 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, which is 25 basis points higher than the forecast in the May survey. (Jin Shi)