Bank of Korea raises base rate to 3% for the second consecutive time
On August 27, the Bank of Korea raised its base interest rate by 0.25 percentage points to 3%. This is the second consecutive increase, adopted amid inflation exceeding the target level and risks to financial stability.
The decision was made by the Bank of Korea’s Monetary Policy Board, which consists of seven members. The rate on seven-day repo operations was raised to its highest level since February 2025. As Channel NewsAsia reports, citing Reuters, 18 of 35 economists surveyed by the agency had expected such a decision.
Updated growth forecast
The central bank also raised its forecast for economic growth this year to 3.3%, from the 2.6% projected in July. At the same time, it left its annual inflation forecast unchanged at 2.7%.
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The median analyst forecast envisages one more rate increase in the first quarter of 2027, after which the regulator is expected to keep it unchanged at least until the end of the following year. Analysts believe the Bank of Korea may focus more on financial stability due to overheating in the housing market, while steady economic growth supports underlying inflation.
Market reaction
Daishin Securities economist Kong Dong-rak said he now expects the peak rate to reach 3.5%, rather than the previously forecast 3.25%. In his assessment, the country’s economy may grow by 3.5% this year.
After the decision was announced, South Korean government bond futures, which are sensitive to changes in monetary policy, continued to fall, dropping by as much as 0.28 points to 103.04. Markets are also awaiting an update to the six-month dot plot, which may signal the peak rate level and the duration of the monetary tightening cycle.
