- Decision
- Maintain
- Rate change
- 0 bps
- base rate
- 2.75%
The Monetary Policy Board of the Bank of Korea kept the Base Rate at 2.75 % for the inter-meeting period, judging that stable headline (2.1 % y/y in March) and core (1.9 %) inflation near the 2 % forecast allow it to pause while it gauges “very high” uncertainties around growth, trade policy and exchange-rate volatility; Q1 activity was weak, exports remain subdued and GDP growth is now expected to dip below the February projection of 1.5 %. The decision follows February’s 25 bp cut from 3.00 %—the only move after a January hold—leaving the rate 25 bp lower over the past year. Household loan expansion is still muted but could pick up with the recent rise in Seoul housing transactions, and the Board is wary of FX swings that saw the KRW/USD briefly spike to 1,480 before retreating to about 1,420 alongside falling equity prices and lower Korean Treasury yields. Globally, escalating U.S. tariff disputes have intensified downside growth risks and boosted market volatility despite a weaker USD and higher U.S. long-bond yields. The Board retains an easing bias, stating it will “maintain its rate-cut stance” and decide on the timing and scale of any further reductions after reviewing updated domestic and external data in its May forecast round.
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.