Bank of Korea Raises Rate for First Time Since 2023

The Bank of Korea lifted its benchmark interest rate by 25 basis points to 3.75% on Thursday, the first increase since early 2023. The move came as the central bank projected inflation would stay above its 2% target "for a considerable time," according to a statement released after the decision.

The rate hike surprised most economists surveyed by Bloomberg, who had expected a hold. The won strengthened 0.4% against the dollar immediately after the announcement, while the yield on the three-year government bond rose 6 basis points to 3.42%.

Governor Rhee Chang-yong said the board voted 5-2 for the increase, with the two dissenters favoring a pause. He added that the decision was driven by persistent price pressures in services and a tight labor market, not by the won's recent weakness.

The central bank now sees inflation averaging 2.6% this year, up from its February forecast of 2.4%. The next policy meeting is scheduled for July 10.