MNI BOK WATCH: On Hold, Governor Keeps Rate Cut Stance

The Bank of Korea on Thursday kept the base rate unchanged at 2.50% in a 6-1 decision, but Governor Rhee Chang-yong stressed the Board remains in a rate cut cycle and will decide on timing based on incoming data. 

“The Board judged it is appropriate to maintain its rate cut stance and to decide on the timing of a rate cut after further assessing both downside and upside factors,” 

Rhee said, following the largely largely anticipated decision. (See MNI BOK WATCH: Board Likely To Hold, Q4 Rate Cut In Focus)  “As uncertainties in economic forecasts remain high and as it is necessary to remain cautious regarding financial stability risks, the Board will determine the timing and size of any further cuts based on incoming data.”

Rhee said inflation is broadly stable and growth prospects remain subdued, justifying a continued easing stance. However, he noted risks from housing prices and household debt, which the Board judged necessary to stabilise by leaving rates unchanged at this meeting. While Board Member Shin Sung-hwan was the sole dissenter, calling for a 25bp reduction, Rhee noted five of the six members were open to a rate cut within three months. 

INFLATION OUTLOOK

The BOK expects headline CPI to rise 2.0% this year, slightly above May’s 1.9% forecast, with core inflation steady at 1.9%. In 2026, both headline and core inflation are seen at 1.9% versus the prior 1.8% forecast. Short-term inflation expectations ticked up to 2.6% in August from 2.5% in July.

“Despite rising agricultural and fishery prices, inflation is projected to remain around 2% due to subdued demand-side pressure and stabilising global oil prices,” the Bank said.

GROWTH PROSPECTS

The BOK revised its 2025 GDP growth forecast to 0.9% from May’s 0.8%, while keeping 2026 at 1.6%. Private consumption has picked up on stronger sentiment and supplementary budget support, though construction investment remains weak, the Bank noted.

“Despite the rise in U.S. tariffs, exports were stronger than expected, supported by semiconductors and autos,” Rhee said, while warning that tariff impacts will weigh on trade ahead.

The Bank in May had lowered its 2025 growth forecast to 0.8% from 1.5% in February and 1.9% in November. The International Monetary Fund and the Korea Development Institute both project 0.8% growth this year.