Central bank lifts 2026 forecast to 3.3 percent on stronger-than-expected chip-led growth Bank of Korea Gov. Shin Hyun-song speaks at a press conference following a rate-setting meeting at the central bank's headquarters in Seoul, Thursday. (Joint Press Corps.) The Bank of Korea on Thursday raised its benchmark interest rate for a second consecutive meeting, tightening monetary policy amid persistent inflationary pressures as chip-led growth outweighed expectations.The Monetary Policy Board lifted the rate by 0.25 percentage point to 3 percent, following an increase of the same size in July. The decision was backed by six of the seven board members, with only one-member dissenting.The hawkish decision puts the base rate back to the 3 percent range for the first time in about a year and a half since February 2025.BOK Gov. Shin Hyun-song stressed the rate hike was a "preemptive action" in response to persistent inflationary pressures."Consecutive rate hikes were necessary because early, preemptive action is important. By anchoring inflation expectations and responding before inflationary pressures spread more broadly, the central bank can ultimately reduce the costs of tightening," Shin said."Preemptive policy action helps minimize the costs of delayed intervention, which can require more aggressive measures later."Thursday's decision came amid strong inflationary pressure fueled by rising incomes from the semiconductor boom.Core inflation remained elevated, rising 2.6 percent in July. The figure, which excludes volatile items, signals persistent underlying price pressure on the economy, backed by improved earnings.Real gross domestic product grew 0.6 percent in the second quarter from the previous quarter, three times the BOK’s 0.2 percent forecast, following a 1.8 percent expansion in the first quarter.With second-quarter growth stronger than expected, the BOK raised its 2026 growth forecast to 3.3 percent from the 2.6 percent projection issued in May. The May figure had already been revised upward from 2 percent.Shin, however, underlined that the future path of interest rates has not been predetermined.He said each rate decision would remain "live," emphasizing that the back-to-back hikes were rare."A gradual pace of rate hikes is expected over the next six months," Shin said, referring to the dot plot, in which a majority of board members projected the benchmark rate would stand at 3.25 percent in six months.Given that the upper end of the US Federal Reserve's policy rate is 3.75 percent, the Korea-US interest rate differential has narrowed to 0.75 percentage point from 1 percentage point, supporting the Korean won."While the won has gained significantly and stabilized from levels in late June, what matters more than the level of the exchange rate is its predictability," Shin said, adding he sees room for the won to gain further.The BOK's back-to-back rate hikes are rare, as the central bank has raised its policy rate consecutively on only three occasions in the past.In 2007, it lifted the base rate in both July and August amid a surge in asset prices. It also delivered back-to-back hikes in November 2021 and January 2022 as inflation surged in the aftermath of the COVID-19 pandemic. From April 2022 to January 2023, the central bank raised rates seven times, including two 0.5 percentage point "big steps."