MNI BOK WATCH: Board Likely To Hold, Eye Q1 Rate Cut

The Bank of Korea Board is expected to keep its base rate unchanged at 2.50% on Thursday, though a rate cut is anticipated in the first quarter of 2026, as some board members favoured easing in October, observers told MNI.

“The downside risk to the economy didn’t materialise, so there is no reason for the bank to lower the base rate this week, especially as the impact of trade policy remains uncertain,” a source familiar with Korea’s economy and monetary policy said.

However, the bias toward easing remains, according to minutes from the October policy-setting meeting, which resulted in a third consecutive hold, but saw one member, Shin Sung Hwan, propose a 25 basis point cut to 2.25%. (See MNI BOK WATCH: Governor Maintains Rate Cut Cycle, Board Holds)

ECONOMIC DATA

Korea’s Q3 GDP rose 1.2% quarter-on-quarter, driven by a 1.3% increase in consumption and a 1.5% rise in exports. IN October. exports rose 3.6% year-on-year, marking the fifth consecutive monthly gain, though shipments to the U.S. and China fell 16.2% and 5.1%.

Another source noted that while housing and real-estate prices are contained, some board members remain cautious on rate cuts, given high housing costs. There is no urgency to lower rates, as the consumer price index remains elevated, the source added. 

CPI rose 2.4% year-on-year in October, the highest since July 2024, when it reached 2.6%, up from 2.1% in September. (See chart)

The source emphasised that a single month of high CPI would not automatically trigger a rate hike, as the monetary policy board largely expects inflation to remain around 2% through this year and next.

October minutes also showed some members were concerned that economic growth could fall below potential and did not rule out rate cuts, though no timing was specified. Some members highlighted risks of financial imbalances from further rate hikes and stressed that any decision to lower rates should carefully weigh costs and benefits.

Private economists expect the base rate to average 2.23% in Q1 2026, implying one rate cut, and to average 2.13% in Q4, suggesting the possibility of two over the year.

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