- Decision
- Lower
- Rate change
- 25 bps
- base rate
- 2.5%
The Monetary Policy Board of the Bank of Korea lowered the Base Rate by 25 bp to 2.50 % on 29 May 2025, judging that a sharp downgrade of this year’s GDP growth forecast to 0.8 % amid slowing domestic demand and weaker exports outweighed lingering concerns over faster household debt accumulation and volatile foreign-exchange markets, while inflation remains near the 2 % target. After a 25 bp cut in February to 2.75 % and an April pause, this decision takes cumulative easing to 50 bp in 2025. The central bank also trimmed the rate on its Bank Intermediated Lending Support Facility by 25 bp to 1.00 % to aid SMEs. Headline and core CPI both stood at 2.1 % in April, with short-term inflation expectations easing to 2.6 % in May; CPI and core inflation are projected at 1.9 % for 2025 as firm food and service prices are offset by softer oil and demand conditions. Employment growth persists but manufacturing jobs continue to decline, housing prices are rising in Seoul, and household loan growth has accelerated. The won has appreciated against the USD yet remains prone to large swings amid global tariff negotiations and higher U.S. yields. The Board highlighted a worldwide growth slowdown driven by elevated tariffs and policy uncertainty, and affirmed an easing bias, stating that further rate reductions may be larger than previously envisaged, with their timing and pace contingent on data and financial-stability developments.
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.