South Korea announces second straight rate hike

South Korea's central bank hiked interest rates Thursday for the second time in a row as it said economic growth remained strong and warned inflation would likely remain elevated for some time owing to higher energy costs.

The Bank of Korea said in a statement that it was appropriate to raise the base rate because "the domestic economy has continued to grow at a stronger-than-expected pace, supported by strong exports and a recovery in domestic demand".

"In this context, it is important to prevent inflationary pressures from becoming widespread through preemptive action."

The increase, from 2.75 percent to 3.0 percent followed a similar move last month, which was the first in more than three years, and comes with inflation stubbornly high.

Consumer prices climbed 2.8 percent on-year in July, slightly down from June but well above the bank's two percent target owing to the spike in energy costs caused by the Middle East crisis.

Monetary policymakers also raised their economic growth forecasts for this year to 3.3 percent and 2.9 percent for next year -- that compares with their May forecasts of 2.6 percent and 2.1 percent respectively.

The bank said "the domestic economy maintained strong growth, led by exports and investment", adding that exports and investment remained strong on the back of "a strong semiconductor sector and as the recovery in consumption" gradually accelerates.

South Korea's two largest chipmakers, Samsung Electronics and SK hynix, have been a key driver of the economic growth as they post massive profits driven by explosive AI demand for their advanced chips.

Samsung said last month that operating profit soared more than 1,800 percent in the second quarter, while SK hynix said net profit surged more than 1,200 percent in the same period.

Gains in the two companies helped propel South Korea's benchmark Kospi index to a record high above 9,000 points inJune, before a tech rout dragged it sharply lower.