S. Korea Central Bank Holds 2.5% Rate on Debt Risk

Seoul, South Korea — Bank of Korea announced its monetary policy on Thursday, maintaining its benchmark interest rate at 2.50%.

South Korea's central bank stated that the move was aimed at curbing recent housing price increases in the Seoul area and managing household debt.

The Bank of Korea cited low economic growth forecasts and uncertainty over trade negotiations as factors in the decision to maintain rates during the intermeeting period.

Inflation rose to 2.2% in June from the previous month, the central bank reported. The increase reflected higher prices for processed foods and base effects from agricultural and petroleum products. 

Core inflation remained at 2.0%, while short-term inflation expectations dropped to 2.4% from 2.6%.

The central bank projects both headline and core inflation will reach approximately 1.9% this year, unchanged from earlier forecasts. 

Officials expect inflation to stabilize around 2% based on weak demand and steady global oil prices.

According to the monetary policy report, economic growth rates showed mixed results.

As political uncertainty in South Korea was resolved, consumer spending improved, and exports increased.

However, despite overall employment growth, there was a decline in construction investment and manufacturing employment.

The central bank expects consumption to recover gradually due to improved sentiment and supplementary government spending. 

Exports face headwinds from U.S. tariffs, officials said—trade negotiations with the United States and the recovery of domestic demand present significant uncertainties for future growth.

The Korean won traded in the mid-to-upper 1,300 range against the dollar, fluctuating in response to developments in trade and geopolitical risks. 

The central bank anticipates continued volatility in the exchange rate.

Housing markets in Seoul and its surrounding areas showed signs of stabilization following government debt management measures, the bank said. Previously, these areas experienced overheating conditions. 

The housing market outside of Seoul and the capital region remained weak.

Household loans continued to grow rapidly, driven by an increase in housing transactions.

The central bank stated that the global macroeconomic situation has increased the complexity of policy decisions.

The central bank noted expectations for slower worldwide growth and varying inflation patterns across countries as high tariffs take effect—stock markets in major economies gained as Middle East tensions eased and U.S.-China trade talks progressed.

Central bank officials stated they will maintain a bias toward rate cuts to address economic growth risks while monitoring policy changes and their effects on inflation and financial stability. 

The timing and scale of future rate reductions will depend on domestic and international developments.