South Korea keeps rates steady as FX risks limit easing scope

[SEOUL] South Korea’s central bank kept interest rates unchanged as widely expected on Thursday as a tumbling won reduced the scope for further easing and policymakers waited to see how the government’s steps to cool Seoul’s property market play out.

The Bank of Korea’s monetary policy board voted to keep the benchmark interest rate unchanged at 2.50 per cent, in line with expectations.

It also raised both growth and inflation forecasts for this year to 1.0 per cent and 2.1 per cent, respectively. For 2026, the BOK sees the economy expanding 1.8 per cent and headline inflation at 2.1 per cent.

Analysts have pushed back the next predicted cut to the first quarter of next year from late this year as they expect policymakers to pay more attention to a declining won and rising financial stability risks from persistent housing price gains in Seoul.

US stock buying by local residents and pension funds pushed the won almost 4 per cent lower this quarter, making it the second-worst performing Asian currency after the yen.

Seoul apartment prices picked up steam, rising 0.2 per cent in the week through Nov 17, underscoring challenges for the BOK as it considers whether to resume its rate-cutting cycle after four reductions since October last year.

“The Korean government has been emphasising forex stability as well as property market price curbs as we can see from President Lee Jae Myung’s comment that he backs the BOK’s October decision to pause. I don’t think BOK would resume cutting rates and go against that,” said Cho Yong Gu, an economist at Shinyoung Securities.

In October, Governor Rhee Chang Yong said four of the six board members were open to a rate cut over the next three months, down from five when the board last reviewed rates.

On Wednesday, finance minister Koo Yun Cheol said the government had met with the National Pension Service (NPS), exporters and brokerages to discuss measures to stabilise the dollar-won market, but stopped short of introducing specific measures to address the situation.