- Decision
- Maintain
- Rate change
- 0 bps
- Base rate
- 2.5%
The Monetary Policy Board of the Bank of Korea on 26 February 2026 kept its Base Rate unchanged at 2.50 %, judging that consumer price inflation is likely to hover near target while economic activity strengthens and financial-stability risks persist. After a 25 bp cut in May 2025 from 2.75 % to 2.50 %, the Board has maintained this level at every meeting since. Inflation eased to 2.0 % y/y in January, and headline and core CPI are now projected at 2.2 % and 2.1 % for 2026, both 0.1 pp above November’s forecasts, with the trajectory seen depending on oil prices, the exchange rate and government price measures. GDP growth is expected at 2.0 % this year, up from the prior 1.8 % estimate, as consumption revives, semiconductor-led exports accelerate and employment in services continues to expand, although construction investment remains weak. In markets, the KRW/USD rate has been volatile—recently retreating after swings driven by residents’ overseas investment and foreign equity outflows—while Korean Treasury yields spiked on diminished rate-cut bets before partially reversing; household loan growth is subdued and Seoul-area house-price gains have moderated. Globally, solid AI-related investment and expansionary fiscal policies underpin “favourable” growth even as U.S. tariff uncertainty, shifting Fed expectations and geopolitical risks cloud the outlook. The Board reiterated its intention to support the recovery while vigilantly monitoring inflation dynamics, property prices, household debt and exchange-rate volatility in deciding future policy.
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.