MNI BOK WATCH: Board Holds, Further Cuts Considered Cautiously

The Bank of Korea expects to maintain its rate-cutting path to support the economy, but is also considering holding the Base Rate steady amid financial stability concerns, Governor Rhee Chang-yong said Thursday, following the Board’s 6-1 decision to keep the rate unchanged at 2.5%.

“We will decide whether and when to implement any further Base Rate cuts, thoroughly assessing growth, inflation and financial stability based on incoming data,” Rhee said, following the largely anticipated decision. (See MNI BOK WATCH: Board Likely To Hold, Eye Q1 Rate Cut) 

“Although the growth outlook has been revised upward, upside and downside risks remain. Financial stability risks, such as strong housing price expectations and heightened exchange rate volatility, persist, and inflation has risen somewhat.”

The BOK Board has now held the Base Rate at 2.5% for four consecutive meetings, reflecting caution over high housing and real-estate prices. Board Member Shin Sung Hwan again voted against leaving the Base Rate unchanged, proposing a 25-basis-point cut, a repeat of his stance at the last meeting in October. (See MNI BOK WATCH: Board Likely To Hold, Eye Q1 Rate Cut)

OPTIONS OPEN

Rhee noted that the Board considers it necessary to keep open both the possibility of additional Base Rate cuts and the option of maintaining the rate for the time being.

A policy statement said the Board “will continue to conduct monetary policy to stabilise consumer price inflation at the target level over the medium-term horizon, while monitoring economic growth and paying attention to financial stability.”

Rhee highlighted that while inflation is expected to fluctuate above 2% for the time being before gradually declining, elevated exchange rates and a recovery in domestic demand pose potential upside risks. 

The bank revised its GDP forecasts to 1.0% this year and 1.8% next year, up from 0.9% and 1.6% in August. CPI forecasts were also revised higher, to 2.1% for both 2025 and 2026, from 2.0% and 1.9%, respectively. (See charts)

Rhee also emphasised the need to monitor household debt, particularly amid high housing price expectations in Seoul and surrounding areas and noted that volatile foreign exchange rates factored into the decision to hold rates. The South Korean won fell to KRW1,477.1 per U.S. dollar on Nov. 24, its lowest level since April.

The next policy meeting is scheduled for Jan. 15, 2026.