The Bank of Korea (BoK) raised rates by 25 basis points to 2.75% in a unanimous decision on Thursday, its first hike in more than three years, marking the end of an easing cycle that produced 100 basis points of cuts from October 2024 to May 2025. The Board signalled more tightening ahead, with updated June projections seeing rates as high as 3.25% in the six months ahead and a median projection of 3%. The pivot is driven by a surge in inflation from the US-Iran conflict, as South Korea sources around 70% of its oil imports from the Middle East; CPI surged 3.2% y/y in June, the fastest pace in more than two years, with transportation up 11.1% and housing, water, electricity, gas and other fuels rising 1.7%. The BoK expects inflation to remain above its 2% target for a "considerable time", projecting headline CPI at 2.7% this year. An AI boom is also a key catalyst, as South Korea is home to SK Hynix and Samsung; exports jumped nearly 80% y/y in June driven by a near-tripling in semiconductor shipments, and GDP expanded by 3.8% y/y in the first quarter, the most since 2022, with the government upgrading its full-year outlook to 3%.