- Decision
- Maintain
- Rate change
- 0 bps
- base rate
- 2.5%
The Monetary Policy Board of the Bank of Korea kept the Base Rate at 2.50 %, citing stable inflation near the 2 % target and only modest, domestically driven growth amid still-elevated uncertainty, while stressing the need to watch Seoul-area housing prices and household debt. After cutting the rate by a cumulative 50 bp in February and May, the Board again opted for a pause, though one member preferred a 25 bp reduction. July headline CPI eased to 2.1 % and core inflation held at 2.0 %, with both measures projected at about 2 % this year and 1.9 % next year as demand-side pressures stay muted; 2025 GDP growth is now seen at 0.9 %, a notch above May’s 0.8 % call, before holding at 1.6 % in 2026, with risks tied to U.S.–China trade frictions and sector-specific tariffs. Construction investment remains weak, but consumption is lifting activity and semiconductor-led exports have surprised on the upside, though they are expected to soften as tariffs bite. Financial markets are broadly calm: KTB yields are range-bound, equities have lost some momentum, the KRW has firmed against the USD on residents’ overseas investment demand, and household loan growth has slowed even as Seoul home-price expectations stay elevated. Globally, the Bank notes a gradual cooling of growth and diverging inflation paths as higher tariffs take hold, while shifting bets on U.S. Federal Reserve easing drive swings in Treasury yields and the dollar. The Board reaffirmed its “rate-cut stance” and will decide the timing and scale of any further easing after assessing incoming data and financial-stability 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.