A combination of factors shifted the central bank toward a tightening bias after it had kept the policy rate unchanged since cutting it to 2.50 percent in May last year.
Consumer prices rose 3.2 percent from a year earlier in June, remaining above 3 percent for the second consecutive month and drifting further away from the central bank's 2 percent target. The BOK has warned inflation will remain elevated throughout the second half of the year.
The government, in its revised economic outlook, raised its growth forecast for this year to 3.0 percent from 2.0 percent on stronger-than-expected expansion driven by an unexpected boom in semiconductor demand. Korea's economy grew 1.8 percent quarter on quarter and 3.8 percent year on year in the first quarter.
Outstanding personal credit loans at Korea's five largest banks rose from 108.67 trillion won at the end of June to 110.06 trillion won as of July 14, an increase of 1.39 trillion won despite tighter lending rules as the stock market turned red-hot.
The hike marked the BOK's first rate increase since January 2023, when it raised the policy rate from 3.25 percent to 3.50 percent amid post-pandemic inflationary pressure.
All 10 economists surveyed by AJP had forecast a quarter-point increase at the July meeting, with nine expecting the policy rate to rise once more to 3.00 percent by the end of the year.
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