South Korea’s central bank kept interest rates unchanged for a fourth straight meeting on Thursday as the turmoil reduced scope for further easing, signaling the bank is nearing the end of its current rate cut cycle.
The Bank of Korea’s Monetary Policy Board voted to keep the benchmark interest rate unchanged at 2.50%, in line with expectations. It raised both growth and inflation forecasts for this year to 1.0% and 2.1% respectively.
Crucially, the BOK dropped language seen in its previous statement that said the board would “maintain its stance of rate cuts,” and replaced it with “the board will decide when to implement further base rate cuts.”
The hawkish turn pushed down December futures on the three-year Treasury bond KTBc1 and other Asia Pacific central banks such as Japan, Australia and New Zealand were less bullish.
Governor Ri Chang-yong told a news conference, “As the won remains weak and is showing herd-like behavior, I worry whether it could work to raise prices.”
“Businesses focused on domestic demand may lose out, although the impact on the overall domestic economy is currently somewhat unclear.”
An economy facing complex risks
The BOK, which has cut rates four times since last year, faces a more complicated outlook than peers such as the US Federal Reserve.
Asia’s fourth-largest economy is ramping up consumption and depreciating its currency, leaving little room for policymakers to support growth without fueling inflation.
Analysts have pushed back the next projected cut from later this year to the first quarter of next year as they expect policymakers to pay more attention to declining gains from continued housing price gains in Seoul and rising financial stability risks.
“Further easing is hard to completely rule out but further rate cuts are unlikely. We are likely to see rates on hold for the time being,” said Ahn Jae-kyun, an economist at Korea Investment Securities.
“It is too early to call for any rate hikes as a sharp slowdown in the economy is still possible in the second quarter, which could prompt a policy response.”
Buying of US stocks by domestic residents and pension funds, which Ri said was “worrisome,” pushed the won down about 4% this quarter, making it the second-worst performing Asian currency after the yen.
Seoul apartment prices rose, rising 0.2% in the week to Nov. 17, underscoring challenges for the BOK as it considers whether to resume easing.
Rhee said Thursday that three of the board’s seven members are open to rate cuts in the next three months, down from four the last time the board reviewed rates.
On Wednesday, Finance Minister Koo Eun-cheol said the government had met with the National Pension Service (NPS), exporters and brokerages to discuss measures to stabilize the dollar-won market, but stopped short of presenting specific measures to address the situation.
For 2026, the BOK sees the economy expanding at 1.8% and headline inflation at 2.1%.