South Korea’s central bank is expected to raise interest rates on Thursday for the first time in more than three years, according to a Reuters poll of economists, as inflation remains well above its 2% target.

Consumer inflation accelerated to a 2-1/2-year high of 3.2% in June, remaining above the Bank of Korea’s 2% target for a fourth consecutive month. It is expected to average around 3% through the second half of the year, paving the way for the start of a tightening cycle.

Stronger economic growth, rising house prices and elevated household debt have given policymakers room to tighten. The economy grew at its fastest pace in nearly six years in the first quarter and BOK Governor Shin Hyun-song said it was necessary to raise interest rates as inflation was expected to exceed the BOK’s target for a considerable period of time amid high oil prices triggered by the U.S.-Israeli war on Iran.

All but one of 37 economists in the July 7 to 13 Reuters poll expected the BOK to raise its base rate to 2.75% on July 16.

Economic Outlook

A majority of economists, 28 out of 31, expected one more rate hike by the end of the fourth quarter, taking the policy rate to 3.00%. While one forecast the key rate at 3.25%, the remaining two predicted 2.75%.

The dot plot released in May also showed that a majority of board members projected the policy rate would reach 3% over the next six months.

Median forecasts showed the BOK would raise its key rate to 3.25% in the first quarter of 2027 and keep it there through at least the end of next year, 25 basis points higher than forecast in the May survey.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.