South Korea's central bank raises interest rates for first time in three-and-a-half years to combat high inflation caused by Middle East crisis
The Bank of Korea raised interest rates by 25 basis points on Thursday, in line with market expectations, in response to continued instability in the Middle East. The Bank of Korea held a monetary policy committee meeting and raised the benchmark interest rate from 2.5% to 2.75%. This is the first interest rate hike by the Bank of Korea since January 2023, when it raised interest rates by 25 basis points to 3.5% to promote the recovery of South Korea's economy affected by the epidemic. The Bank of Korea will begin implementing monetary policy easing measures in October 2024, cutting the benchmark interest rate by a cumulative 100 basis points from 3.5% to support economic growth. The rate has remained unchanged since July 2025. Expectations for the Bank of Korea to raise interest rates have been widespread as the bank has recently signaled that it will adopt tighter monetary policy to combat rising inflationary pressures. At its last interest rate decision meeting in May, the central bank kept its benchmark interest rate unchanged for the eighth consecutive time.