The latest remarks reinforced signals already sent at the BOK’s May policy meeting, when 19 of 21 dots in the central bank’s six-month conditional rate outlook pointed to levels above the current 2.50 percent, followed by Shin’s repeated public comments in June that rate increases would be needed to keep inflation under control.
BOK Gov. Shin Hyun-song presented the assessment ahead of facing regular probe by the National Assembly's Finance and Economy Planning Committee.
“The Bank of Korea judges that it is necessary to raise the base rate at an appropriate time,” Shin said, citing inflation above the target, improving growth and growing financial stability risks.
The central bank has kept its base rate at 2.50 percent since last cut in May last year.
The BOK said Korea’s economy is expected to maintain solid growth as the semiconductor cycle remains strong and tensions in the Middle East ease.
In its May outlook, the central bank projected the economy to grow 2.6 percent this year, up sharply from 1.1 percent last year.
Exports have continued to expand rapidly, led by semiconductors, as global artificial intelligence investment boosts demand for high-performance memory chips.
The central bank said semiconductor strength is expected to spill over to other parts of the economy, supporting both exports and domestic demand.
Still, it warned that the growth path remains uncertain due to the pace of AI investment, geopolitical risks and U.S. tariff policy.
It also noted that the benefits of the semiconductor upturn remain concentrated in certain industries and income groups, which could slow the broader economic spillover.
Inflation was another key concern in the report.
Consumer price inflation, which had stood at 2.0 percent in January and February, rose to 3.2 percent in June.
Core inflation stood at 2.5 percent in June, while the living necessities price index rose 3.4 percent.
The BOK said lower oil prices may ease headline inflation, but stronger demand from the improving economy and the pass-through of higher costs from the weak won could keep inflation elevated.
Won-denominated import prices rose 24.8 percent from a year earlier in May, while non-energy import prices increased 18.3 percent.
Financial and foreign exchange markets have also become more volatile, the central bank said.
The won-dollar exchange rate has been trading in the low- to mid-1,500 won range despite Korea’s large current account surplus, pressured by continued foreign selling of Korean stocks and a stronger U.S. dollar.
Foreign investors sold a net 40.4 trillion won worth of Korean stocks in March, 48.5 trillion won in May and 57.2 trillion won in June.
The BOK said much of the selling since May reflected profit-taking and portfolio rebalancing after a sharp rally in Korean equities.
The KOSPI has risen 91.9 percent this year, supported by the semiconductor boom and expectations for capital market reforms.
But the central bank said volatility has increased as investment demand remains concentrated in semiconductor stocks, while concerns over AI profitability and uncertainty over U.S. monetary policy add pressure to the market.
The BOK said Korea’s financial system remains broadly stable, supported by stronger real economic growth and sound resilience at financial institutions.
The central bank said it will continue market stabilization efforts, including monitoring risk events, conducting smoothing operations in the foreign exchange market and using foreign exchange swaps with the National Pension Service.
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