The Bank of Korea lifted its seven-day repurchase rate by 25 basis points to 2.75% on Thursday, its first increase since January 2023, ending a prolonged period of steady or looser policy. The widely anticipated move left the dollar-won rate largely unmoved, while the benchmark KOSPI index fell 7%, driven primarily by a sell-off in semiconductor stocks rather than the rate decision itself.

Headline consumer inflation reached 3.2% in June, a 30-month high and the second consecutive month above the central bank’s 2% target. Price pressures have been stoked by elevated energy costs linked to the US-Israeli military campaign against Iran, which has disrupted supply chains and pushed fuel prices up 24.7% year-on-year. At the same time, the economy is expanding faster than expected: first-quarter GDP grew 1.8%, the quickest pace in nearly six years, and the government this week raised its 2026 growth forecast to 3.0%, a five-year high, on the back of record semiconductor exports that surged almost threefold to $44.82 billion in June.

The tightening aligns Seoul with a broader regional shift. Central banks in Japan, Australia, New Zealand, Indonesia and the Philippines have all raised rates in recent months. Viewed from Moscow, the Korean move is seen as a response to inflation that remains elevated by East Asian standards, while analysts in London point to above-consensus growth of 4.0% this year as giving the bank room to act despite weak private consumption. The decision also reflects concern over household debt, which has climbed alongside real estate prices in the Seoul metropolitan area and a rally in technology stocks.

A majority of analysts in Seoul expect at least one more quarter-point hike before year-end, taking the policy rate to 3.00%, with median forecasts pointing to 3.25% by early 2027. Governor Shin Hyun-song’s press conference, livestreamed after the decision, will be parsed for signals on the pace of further tightening.