South Korea’s central bank raised its key interest rate to 3 percent on Thursday, delivering a second consecutive hike as strong exports and recovering domestic demand boosted economic growth while higher energy costs kept inflation under pressure.
The Bank of Korea increased its base rate from 2.75 percent, following last month’s hike, which was the first increase in more than three years. The bank said a further rise was needed to prevent inflationary pressures from spreading across the economy.
“The domestic economy has continued to grow at a stronger-than-expected pace,” the Bank of Korea said, pointing to strong exports and a recovery in domestic demand.
Inflation remains a concern. Consumer prices rose 2.8 percent year-on-year in July, easing slightly from June but remaining above the central bank’s 2 percent target. Higher energy costs linked to the Middle East crisis have added to price pressures.
At the same time, policymakers upgraded their economic growth forecasts.
They now expect the economy to expand 3.3 percent this year and 2.9 percent next year, up from previous forecasts of 2.6 percent and 2.1 percent respectively.
The bank said exports and investment have remained strong, helped by the semiconductor industry and a gradual recovery in consumer spending.
South Korea’s major chipmakers, Samsung Electronics and SK hynix, have played a key role in supporting the economy amid booming demand for advanced chips used in artificial intelligence systems.
Samsung reported an operating profit increase of more than 1,800 percent in the second quarter, while SK hynix posted a net profit increase of more than 1,200 percent over the same period.
Strong gains in the two companies helped push South Korea’s benchmark Kospi index above 9,000 points in June, although a subsequent global technology sell-off sent the index sharply lower.
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