The Bank of Korea raises interest rates for the first time since early 2023. The boom in the chip industry intensifies the stickiness of inflation
South Korea's central bank announced its first interest rate hike in more than three years on Thursday, as an artificial intelligence-driven chip craze added to the stickiness of inflation and spurred economic growth faster than expected. The Bank of Korea raised its seven-day repo rate by 0.25 percentage point to 2.75%, in line with the expectations of all economists surveyed by Bloomberg. The move marks the start of a new policy cycle, after South Korea has previously cut borrowing costs four times since the end of 2024. The last time the bank raised interest rates was in January 2023. The Bank of Korea has been sending increasingly hawkish signals for months. Since presiding over his first policy meeting in May, Governor Shin Hyun-song has repeatedly emphasized that inflation, economic growth, exchange rates and financial stability risks all point in the same policy direction, minimizing the trade-offs that often complicate monetary policy decisions. The central bank governor will hold a press conference later on Thursday. Investors will be watching how policymakers assess stronger-than-expected economic growth, expanding inflationary pressures and rising financial stability risks.