- Decision
- Maintain
- Rate change
- 0 bps
- Base rate
- 2.5%
The Monetary Policy Board of the Bank of Korea kept the Base Rate unchanged at 2.50 %, judging that surging energy-driven inflation from the Middle East war, a stronger-than-anticipated rebound in activity and persistent housing- and FX-related stability concerns warrant caution until the conflict’s spillovers become clearer. Following a 25 bp cut to 2.50 % in May 2025, the rate has been on hold at every meeting since. April consumer prices accelerated to 2.6 % y/y and are now projected at 2.7 % for 2026 (core 2.4 %), well above February forecasts, while GDP growth is forecast at 2.6 % this year after a robust 1.7 % q/q jump in Q1, powered by semiconductors, exports and a supplementary budget; employment is still rising but the pace has eased. Korean Treasury bond yields have climbed and the won has swung back to about KRW 1,500 per USD amid broad market volatility; Seoul-area house prices and housing-related lending have re-accelerated even as overall household credit growth remains contained. Globally, the Board sees slowing growth yet “considerably” higher inflation as oil and commodity prices spike and supply chains tighten, while AI-related investment and shifting G3 policy outlooks push up bond yields and the dollar. Signalling a hawkish bias, the Board said it “will decide the timing of any rate hikes” based on incoming data; two of seven members already voted for a 25 bp increase to 2.75 %.
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.