BOK kicks off tightening cycle as chip boom fuels growth, inflation concerns

The Bank of Korea (BOK) raised its benchmark interest rate Thursday, for the first time in three and half years, as the semiconductor-driven economic recovery, stubborn inflation and lingering financial stability risks have combined to bolster the case for tighter monetary policy.

The central bank lifted its policy rate by 25 basis points to 2.75 percent at its Monetary Policy Board meeting, marking its first rate increase since January 2023.

BOK Gov.

Shin Hyun-song also signaled that further rate increases remain on the table, saying the bank would “continue to respond through monetary policy until we are confident that inflation is converging sustainably toward our target.” A major factor behind Thursday’s move was the sharp improvement in Korea’s growth outlook, fueled by the global artificial intelligence (AI) boom and soaring demand for semiconductors.

As economic momentum strengthens, the central bank has less need to support activity through ultra-accommodative policy and can instead focus on containing inflation.

Shin said Korea, a key player in the global AI supply chain ...