appConfigEntityId

bodyType

customContents

entityId

entityUuid

isVideo

articlePageQuery

article

articleSchemaContent

content

hooksArticlePageAdvertisementConfigArticle

hooksArticlePageFloatingButtonConfigArticle

appConfig

filter

json

liveArticle

Park Chan-kyong

South Korea’s central bank has raised interest rates for a second straight month, with analysts saying its semiconductor boom has given policymakers room to confront inflation, a weak won and rising home prices, but at the cost of a deeper squeeze on indebted households and small businesses.
The Bank of Korea (BOK) lifted its benchmark rate by 0.25 percentage point to 3.0 per cent on Thursday, a month after an identical increase took it to 2.75 per cent in July.
The latest move brought the rate to its highest level since February 2025 and signalled a central bank willing to accept some damage to domestic demand to contain broader financial risks.
Households with housing-related loans, small businesses and other borrowers are expected to feel the pressure most acutely. But with semiconductor exports and investment driving stronger-than-expected growth, economists said the BOK had decided the greater danger lay in moving too slowly.
The Monetary Policy Board made that priority clear in its statement, saying: “It is important to prevent inflationary pressures from becoming widespread through pre-emptive action, and it is also necessary to continue paying attention to financial stability risks.
“The board will decide the timing and pace of further increases in the Base Rate while assessing trends in inflation and the domestic economy, as well as financial stability.”

BOK Governor Shin Hyun-song described the consecutive July and August rate increases as “a step outside convention” intended to send “a strong signal” about the central bank’s determination to stabilise financial markets.
The rate increase came as the BOK sharply upgraded its economic growth forecasts for both this year and next, citing robust semiconductor exports and investment.
It now expects the South Korean economy to grow 3.3 per cent in 2026 – up from its previous forecast of 2.6 per cent – and 2.9 per cent in 2027, up from 2.1 per cent.
The central bank said the domestic economy continued to grow strongly, led by exports and investment, while improving income conditions supported a gradual recovery in consumption.
It expects robust growth to continue as semiconductor exports and investment remain strong.
South Korea’s external accounts have also benefited from the semiconductor boom.
The country recorded a cumulative current-account surplus of US$191.01 billion in the first six months of 2026, the largest half-year surplus on record and roughly four times the US$47.87 billion surplus recorded during the same period in 2025.
“By controlling inflation expectations through pre-emptive measures and responding early before price increases spread, we can ultimately reduce the costs to the economy,” Shin said.
He also expressed concern about continued rapid increases in housing prices in the Seoul metropolitan area. Although price growth has slowed in some parts of Seoul, overall housing costs across the capital region have continued to rise at a high pace, and household loans have also increased.
Shin acknowledged that “it is unreasonable to control housing prices solely through interest rates”, but said the latest rate increase would help ease the upward trend.

The weak won against the US dollar is another factor behind the BOK’s move to raise rates.
The currency had fallen to around 1,550 won per dollar in late June, its weakest level in 17 years, but has since recovered to the upper 1,300-won range.
“The won-dollar rate has stabilised to a large extent, but historically, the won is still very weak,” Shin said, adding that a stronger won would help curb inflation by lowering import prices.
Economics Professor Song Heon-jae of the University of Seoul said he was surprised by the back-to-back rate increases.
“Through the rate increases, the central bank is seeking to stabilise the financial market, even if it may hurt households and small businesses saddled with debts and other borrowers,” Song told This Week in Asia.
South Korea’s household credit balance topped 2,000 trillion won (US$1.45 trillion) for the first time in the second quarter of 2026, driven by rising housing transactions and debt-financed investments.
Younger households are particularly exposed to the effects of higher borrowing costs because of their leveraged investments in equities and housing.
“Financial authorities are confident that robust exports led by semiconductors would be enough to make up for the increases’ negative impact on domestic demand,” Song said.

Inflation remains another major concern.
Consumer prices rose 3.1 per cent year on year in May and 3.2 per cent in June before easing to 2.8 per cent in July.
Although the July figure was the lowest in three months, it remained above the BOK’s 2 per cent target.
The BOK expects inflation to remain above its target for a considerable period as elevated cost pressures pass through to consumer prices and stronger incomes gradually boost demand.
It forecasts headline inflation at 2.7 per cent this year and 2.3 per cent next year.
High economic growth can add to inflationary pressure as rising incomes increase demand. The BOK has therefore emphasised the need to act before price increases become more broadly entrenched.
The rate increase could also support the won by narrowing the interest-rate gap between South Korea and the United States as a smaller differential can reduce incentives for investors to move funds into dollar-denominated assets.
Economics Professor Kim Sung-hyun of Sungkyunkwan University said the growth trend was likely to continue into next year, citing long-term semiconductor contracts and strong demand for products from Samsung and SK Hynix.
“The government and the central bank are giving priority to stabilising the financial market through the rate increases, even though it would slow economic growth somewhat and increase the burden on borrowers, including the government,” Kim said.

Hur Jung, an economics professor at Sogang University, said the won’s recent appreciation against the dollar could prove temporary, partly because of increased foreign-currency supplies from major semiconductor exporters such as Samsung and SK Hynix.
“However, there will soon be a great demand for dollars when South Korea starts implementing its promised US$350 billion investment in the US, driving the exchange rate higher again,” he said.
At the same time, the government was pursuing an expansionary fiscal policy to stimulate economic growth and address income disparities, despite inflation concerns, Hur said.
“Under these circumstances, the bank is likely to raise the rate again by another 0.25 percentage point sometime in the coming six months,” he said.
The BOK’s latest decision highlighted the “difficult balance” facing South Korean policymakers: keeping inflation and housing-market risks under control without undermining domestic demand, Hur added.
Economics Professor Kim Gwang-suk of Hanyang University said inflation was likely to ease towards 2 per cent, while the central bank could seek to maintain its benchmark rate between 3.25 per cent and 3.5 per cent in the foreseeable future.
“The rate increases will help curb rising housing prices. But they will put greater burdens on those relying on debt, while causing no major impact on large companies that are enjoying the export boom,” he said.


Suspected landmine blast injures South Korean soldiers in DMZ

Japan asks for US$43 million to weed out cherry tree-devouring longhorn beetle

South Korea steps up to plug Europe’s jet fuel deficit

US announces AI dialogue with China, launches Board of Trade

South Korea

‘Strong signal’: South Korea raises rates again to fight inflation, rising home prices

 People walk in a business district in Seoul. The Bank of Korea lifted its benchmark rate by 0.25 percentage point to 3.0 per cent on Thursday. Photo: EPA

Shin Hyun-song, governor of the Bank of Korea, speaks during a press conference after a monetary policy meeting at the central bank’s headquarters in Seoul on Thursday. Photo: Yonhap / AFP

Currency traders watch monitors near a screen showing the Korea Composite Stock Price Index and the foreign exchange rate between the US dollar and South Korean won at Hana Bank in Seoul on Wednesday. Photo: AP

People shop for vegetables, fish, and other items at an early-morning market in Jeonju on August 13. Consumer prices in South Korea eased to 2.8 per cent in July. Photo: EPA / Yonhap

A person views residential complexes in Seoul, South Korea, on August 9. Overall housing costs across the capital region have continued to rise at a high pace. Photo: EPA / Yonhap

Shipping containers and cranes at Busan New Port in Busan on August 22. South Korea’s economy is forecast to grow 3.3 per cent in 2026. Photo: AFP

A business district in Seoul, South Korea, on Thursday. The central bank says the domestic economy continues to grow strongly, led by exports and investment. Photo: EPA

South Korea hands police more power even as dead bodies expose the lies

Investigators examine the scene at a palm tree farm in Jeju where the body of missing woman Jang Mi-ran was found on Monday. Photo: Yonhap/EPA

South Korean President Lee Jae Myung (centre) speaks during a cabinet meeting at the presidential office in Seoul on Tuesday. Photo: Yonhap/EPA

A tarpaulin is seen on Wednesday installed over the scene at the palm tree farm where Jang Mi-ran’s body was found. Photo: Yonhap/EPA

South Korea’s moon landing, quantum chips: Seoul bets big on post-AI economy

South Korean President Lee Jae Myung views a container vessel model equipped with a small modular reactor at the presidential office Cheong Wa Dae in Seoul on Wednesday. Photo: EPA/Yonhap

South Korean President Lee Jae Myung (fifth from right) speaks during a meeting to explore ways to nurture advanced future industries in Seoul on Wednesday. Photo: EPA/Yonhap

A highest-capacity, high-bandwidth 16-High HBM3E memory chip from SK Hynix. Photo: Reuters

South Korea is targeting its first lunar landing by 2030. Photo: Shutterstock

Why South Korea’s AI chip boom is a ‘serious concern’ for its economy

The logo of Samsung Electronics is seen on a gate at the company’s headquarters in Suwon, South Korea, on May 22. Photo: AFP

SK Hynix is one of the world’s important suppliers of memory chips used in AI systems. Photo: Reuters

A PR track is demonstrated at the laboratory of the department of semiconductor engineering at Korea University in Seoul. Semiconductor exports have helped drive South Korea’s export growth earlier this year. Photo: Reuters

Residential buildings in downtown Seoul, South Korea. Economists note that only about 55 per cent of households in the Seoul metropolitan area own their homes. Photo: Shutterstock

In South Korea, Trump’s US$350 billion demand threatens financial meltdown

A protester holding US dollar banknotes wears a mask of Donald Trump during a rally in July against Trump’s tariff policy near the US embassy in Seoul. Photo: AFP

South Korea’s President Lee Jae-myung signs a guest book at the White House on August 26 as US President Donald Trump looks on. Photo: Yonhap/dpa

A trader stands near screens showing the foreign exchange rate between the US dollar and South Korean won at a dealing room of Hana Bank in Seoul on Friday. Photo: AP 

This Week in Asia

Economics

News

Asia

East Asia

Bank of Korea Governor Shin Hyun-song says the pre-emptive moves aim to help ‘reduce the costs to the economy’


Bank of Korea Governor Shin Hyun-song says the pre-emptive moves aim to help ‘reduce the costs to the economy’.


Central banks

Banking & finance

Sogang University

‘Strong signal’: South Korea raises rates again to fight inflation, rising home prices

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Bank of Korea Governor Shin Hyun-song says the pre-emptive moves aim to help ‘reduce the costs to the economy’

Bank of Korea Governor Shin Hyun-song says the pre-emptive moves aim to help ‘reduce the costs to the economy’