The Bank of Korea is expected to raise interest rates this week, marking the first increase in more than three years.

Deep Tide TechFlow message: On July 14, a survey by foreign media showed that economists expect the Bank of Korea to implement its first rate hike in more than three years on Thursday, with another hike again before the end of the year. South Korea’s June inflation rate rose to 3.2%, reaching a two-and-a-half-year high and surpassing the Bank of Korea’s 2% target for the fourth consecutive month. Inflation is expected to average around 3% in the second half of this year, paving the way to begin a tightening cycle. Strong economic growth, rising house prices, and household debt remaining at a high level give policymakers room to tighten policy.

South Korea’s first-quarter economy grew at its fastest pace in nearly six years. Bank of Korea Governor Rhee Hyun-sung said that, given that oil prices have been driven high by conflicts in the Middle East, inflation is expected to exceed the Bank of Korea’s target for a considerable period, so it is necessary to raise rates. In a survey conducted from July 7 to July 13, of the 37 economists, all but one expected the Bank of Korea to raise the policy rate to 2.75% on July 16. Most surveyed economists (28 out of 31) expected one more rate hike by the end of the fourth quarter, bringing the policy rate to 3.00%. Of these, one person projected the policy rate would reach 3.25%, while the other two projected it would be maintained at 2.75%. The median forecast shows that the Bank of Korea will raise the policy rate to 3.25% in the first quarter of 2027 and keep it at that level through at least the end of next year, which is 25 basis points higher than the forecast in the May survey. (Jin10)