Seoul: South Korea's central bank, the Bank of Korea (BOK), decided to keep its benchmark interest rate steady at 2.5 percent, citing stronger-than-expected growth momentum while aiming to safeguard financial stability amidst ongoing challenges such as a weak local currency and an unstable housing market.
According to Yonhap News Agency, this decision marks the sixth consecutive time the Monetary Policy Board has opted to hold the key rate unchanged, maintaining the level since May 2025. Since October 2024, the BOK has reduced the benchmark interest rate by a cumulative 100 basis points from 3.5 percent to bolster economic growth. The central bank emphasized that inflation is expected to remain stable near the target level, and economic growth is projected to continue improving at a stronger-than-expected pace, with risks to financial stability also persisting.
The BOK provided an optimistic outlook for the country's economy, revising its 2026 growth forecast upward by 0.2 percentage points to 2 percent. The bank noted that consumption is expected to recover domestically, while growth in exports and facilities investment is projected to accelerate, supported by a robust semiconductor sector and sound global growth.
According to a newly released dot plot, 16 out of 21 dots placed by the board's seven members, including Governor Rhee Chang-yong, favored a rate freeze over the next six months. The remaining dots suggested potential rate cuts, with four advocating for a reduction to 2.25 percent and one proposing an increase to 2.75 percent. Governor Rhee highlighted the unstable property market and rising household debt as key concerns influencing the board's decision.
Data from the Korea Real Estate Board showed that apartment sale prices in Seoul increased by 8.98 percent year-on-year in 2025, the highest growth since the board began tracking such data in 2013. Despite efforts to cool the overheated housing market, prices continued to rise. President Lee Jae Myung has reiterated his commitment to stabilizing the real estate market, emphasizing the need to address issues related to household lending and capital concentration in the property sector.
The BOK also focused on stabilizing the foreign exchange market amid the won's continued weakness. Despite some recovery from a multi-year low, the local currency remains below the critical 1,400 won per U.S. dollar level. Governor Rhee warned that a rate cut could lead to capital outflows, further weakening the local currency.
The BOK is also mindful of the widening interest rate gap with the U.S., as a larger gap could prompt foreign capital outflows and put additional pressure on the won. Currently, the policy rate gap between South Korea and the U.S. is 1.25 percentage points.