The Bank of Korea is widely expected to raise its base rate by 25 basis points to 2.75% at its Monetary Policy Board meeting on July 16, with economists forecasting a unanimous decision, The Chosun Daily writes.

Governor Shin Hyun-song has said on three occasions since taking office after the May policy meeting that higher interest rates are needed. The central bank has held the benchmark rate at 2.5% since July last year.

All 10 macroeconomics and bond market specialists surveyed by ChosunBiz expect the board to approve the increase, with no dissenting votes in favour of holding or cutting rates.

Inflation is the main driver. Consumer prices rose 3.2% in June from a year earlier, above the Bank of Korea's 2% target and the largest increase since December 2023. Inflation was 2% in January and February before accelerating from March. The cost of living index rose 3.4% in June.

The won's weakness has also strengthened the case for tighter policy. The currency has traded above KRW1,500 to the US dollar for more than a month. Governor Shin has cited the interest rate gap with the US as a factor behind the currency's depreciation. South Korea's policy rate is 125 basis points below that of the US Federal Reserve, extending an interest rate inversion that has persisted since July 2022.

The won closed at KRW1,501.4 against the dollar on July 10, down KRW4.7 from the previous session. It traded above KRW1,500 for 36 consecutive sessions between May 15 and July 7. It briefly fell below that level on July 8 before moving back above it.

Governor Shin has consistently argued for higher borrowing costs. Following the May policy meeting, he said rates should be raised at an appropriate time. He repeated that message in a speech marking the Bank of Korea's anniversary last month and again during testimony to the National Assembly's Finance and Economy Committee on July 9.

All 10 economists also expect the base rate to reach 3% by the end of the year, with a further 25 basis point increase forecast in October. That would take the policy rate to its highest level since January last year.