- Decision
- Maintain
- Rate change
- 0 bps
- base rate
- 2.5%
The Monetary Policy Board of the Bank of Korea kept the Base Rate on hold at 2.50 percent, citing a still-subdued growth outlook, stable but near-target inflation and elevated uncertainties around global trade, while flagging the need to assess the effect of recently tightened household-debt measures amid rapid loan growth and earlier surges in Seoul-area housing prices. The decision follows a cumulative 50 bp of easing since February—including a 25 bp cut in May—after which the rate was left unchanged in April and again now. June consumer price inflation quickened to 2.2 percent, though core inflation stayed at 2.0 percent and both gauges are projected to average roughly 1.9 percent this year; domestic demand has firmed and exports remain supportive, but construction investment is still contracting and overall growth is expected to stay low with significant downside risks from pending U.S. tariff negotiations. Household credit continues to expand at a “high pace,” and while Seoul’s property market shows early signs of stabilising, the central bank remains alert to financial-imbalance risks. Externally, the won has traded with heightened volatility in the mid- to upper-KRW 1,300s per USD, long-term local yields have risen on prospects of larger fiscal borrowing, and global markets have rallied on easing geopolitical tensions and expectations of renewed U.S. Fed cuts. The Board reiterated its easing bias but said future reductions will be calibrated to incoming data on growth, inflation, housing and FX conditions.
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.