S Korea Central Bank Holds Rate at 2.50%, Cites Housing

SEOUL, South Korea — The Bank of Korea held its benchmark interest rate steady at 2.50% on Thursday, opting for no change as policymakers continue to assess economic conditions.

The Bank of Korea stated that its Monetary Policy Committee has decided to maintain the base rate at its current level until the next policy meeting.

The central bank stated that it will continue to monitor domestic and international conditions while maintaining the current rate.

The bank cited the need to examine housing prices in metropolitan areas and trends in household debt.

It stated that inflation remains stable, while economic growth shows some improvement, centered on domestic demand; however, uncertainties persist about the growth outlook.

The central bank revised its 2025 economic growth forecast upward to 0.9%, compared to the 0.8% projected in May. The 2026 growth estimate was unchanged at 1.6%.

The bank stated that domestic consumption has recovered and semiconductor exports have increased more than expected, despite continued weakness in construction investment.

Total employment increased, though manufacturing and other major sectors continued to decline.

Consumer price inflation measured 2.1% year-on-year in July, while core inflation, which excludes food and energy, stood at 2.0%. Short-term public inflation expectations increased to 2.6% in August from 2.5% in July.

The bank raised its 2025 consumer price inflation forecast to 2.0% from 1.9% projected in May.

It kept its core inflation projection at 1.9%. For 2026, both consumer price and core inflation forecasts were raised to 1.9% from 1.8%.

Domestic prices are expected to rise by around 2%, despite increases in prices for agricultural, livestock, and fishery products. 

The bank attributed this to subdued demand pressures and stable international oil prices.

The central bank stated that global economic growth is slowing as tariff increases take effect, although trade negotiations between the United States and major countries have progressed.

It said inflation paths will differ by country.

U.S. long-term Treasury yields and the dollar index initially rose before declining, as market expectations for Federal Reserve rate cuts increased. Major stock indices advanced amid reduced uncertainty regarding tariff negotiations.

Financial and foreign exchange markets remained relatively stable, according to the Bank of Korea. Government bond yields moved within a narrow range, and stock prices moderated after recent increases.

The won-dollar exchange rate increased, attributed to continued expectations for overseas investment fund demand by residents. Growth in household lending slowed sharply, reflecting the impact of government measures on household debt.

In the metropolitan housing market, both price increases and transaction volumes have slowed, although expectations for housing prices remain elevated.

The central bank stated that it will continue to monitor economic growth and aim for medium-term price stability, with a continued focus on financial stability in its monetary policy operations.

Future monetary policy will maintain a rate-cutting stance to mitigate downside risks to growth. 

In contrast, changes in domestic and international policy conditions will inform the timing and pace of further rate reductions, according to the bank.

Key uncertainties identified by the central bank include U.S.-China trade negotiations, the implementation of product-specific tariffs, and the pace of improvement in domestic demand.