- Decision
- Lower
- Rate change
- 25 bps
- base rate
- 2.75%
The Bank of Korea’s Monetary Policy Board lowered the Base Rate by 25 bp to 2.75 % on 25 February 2025, citing continued inflation stability, a sustained slowdown in household debt and a materially weaker growth outlook, with GDP now expected to expand just 1.5 % this year versus November’s 1.9 % projection amid flagging exports, soft consumption and lingering political uncertainty. The move follows a January decision to keep the rate unchanged at 3.00 %, after two earlier cuts last year. In parallel, the Board trimmed the interest rate on its Bank Intermediated Lending Support Facility to 1.25 % to bolster financing for vulnerable SMEs. Consumer price inflation edged up to 2.2 % y/y in January on higher oil prices and a weaker KRW, but core inflation stayed at 1.9 % and both headline and core are forecast around 2 % and 1.8 %, respectively, for 2025, as demand pressures remain subdued. Export softness and martial-law-driven political uncertainty weigh on sentiment, while household loan growth and nationwide housing prices continue to decelerate. The won has been volatile—initially pressured by domestic politics and U.S. policy risks before easing—amid a partial pull-back in the strong USD and lower global bond yields. Globally, heightened downside growth risks and inflation uncertainty stem from U.S. tariff actions, shifting major-economy monetary stances and persistent geopolitical tensions. The Board pledged to keep inflation near target while supporting activity, warning that further easing will depend on incoming data and vigilance over exchange-rate swings and any rebound in household borrowing.
Rate evolution
Since late May 2025, the Bank of Korea lowered the Base Rate by 25 basis points to 2.50% and held it there through May 2026, moving from an initial easing step driven by a sharp growth downgrade, weak domestic demand and slower exports to an extended pause as inflation stayed around 2% and the Board continued to caution about household debt and foreign exchange volatility. As consumption and exports improved, helped by semiconductors and fiscal support, it for a time retained an easing bias but increasingly emphasised housing prices in Seoul and its surrounding areas, household debt, exchange-rate volatility and inflation running somewhat above earlier forecasts, shifting from a rate-cut stance to a data-dependent hold.
In the most recent decisions, stronger-than-expected growth and inflation near target kept policy unchanged in January and February 2026, and the April 2026 hold was framed around the Middle East war as a supply shock that could lift inflation while weakening growth. The Board again left the Base Rate at 2.50% in May 2026 even as it raised its 2026 growth forecast to 2.6% from 2.0% and its consumer price inflation and core inflation forecasts to 2.7% and 2.4% from 2.2% and 2.1%, respectively, citing increased inflationary pressure from the Middle East war, stronger exports, semiconductor-led investment, favourable consumption and financial stability risks, but judging that uncertainty around the conflict and its spillovers warranted staying on hold. On July 16, 2026, the Bank of Korea raised the Base Rate by 25 basis points to 2.75%, judging that growth had strengthened further on exports and investment, inflation was likely to remain above target for a considerable time and financial stability risks persisted, noting that 2026 growth was likely to considerably exceed the May forecast of 2.6% and that June consumer price inflation rose to 3.2% while core inflation held at 2.5%, and signalling a stance consistent with further rate hikes. On August 27, 2026, it raised the Base Rate by another 25 basis points to 3.00%, citing stronger-than-expected growth supported by strong exports and a recovery in domestic demand, inflation expected to remain above target for a considerable time and continued financial stability risks, as it raised its growth forecasts for 2026 and 2027 to 3.3% and 2.9%, kept its consumer price inflation forecasts at 2.7% and 2.3%, and lifted its core inflation forecasts to 2.5% for both years while signalling that the timing and pace of further increases would depend on inflation, domestic economic trends and financial stability.