South Korea's central bank on Thursday raised rates for a second straight time in its bid to cool rising prices, after core inflation reading hit the highest level last month since December 2023.

The Bank of Korea hiked rates by 25 basis points to 3%, its highest since January 2025 and in line with expectations.

The hike comes as core inflation in Asia's fourth largest economy climbed to 2.6% in July. While the headline inflation rate in July had cooled slightly to 2.8%, it has been rising every month since February, when the Iran war started, until June.

In its last meeting, the BOK said that it was necessary to "continue a policy stance consistent with further rate hikes," as elevated cost pressures persist and housing prices continue to accelerate in Seoul and its surrounding areas.

Housing prices in Seoul had jumped 2.5% month on month in June, marking its highest rise in five years, according to South Korean news outlet Asia Business Daily.

The BOK also noted that export and domestic demand are both expected to show strong growth, supported by the spillover effects of the country's semiconductor sector.

As such, inflation is forecast to remain above its 2% target level for a considerable time, the central bank said.