On the 28th, the Monetary Policy Committee of the Bank of Korea held a monetary policy direction meeting at the bank's headquarters in Jung-gu, Seoul, and maintained the benchmark interest rate at 2.50%, the same as before. Following the previous meeting in July, the committee decided to freeze the rate again this month, marking two consecutive months of no change.
There is still significant uncertainty in forecasting growth, but the Bank of Korea assessed that the economy is improving, mainly driven by domestic demand. The Monetary Policy Committee noted, "It is necessary to take a closer look at housing prices and household debt trends in the metropolitan area," adding that "it is appropriate to maintain the current level of the benchmark interest rate while assessing changes in domestic and external conditions."
On this day, the Bank of Korea raised its economic growth forecast for this year from 0.8% to 0.9%. This figure is the same as the estimate provided by the Ministry of Economy and Finance on the 22nd. The Monetary Policy Committee stated, "Domestic demand will continue a gradual recovery due to supplementary budgets and improved consumer sentiment," but noted that "exports are expected to show a good trend for the time being, but will gradually slow down as the impact of U.S. tariffs increases." The committee maintained its previous economic growth forecast of 1.6% for next year.
The following is the full text of the Monetary Policy Committee's decision document on monetary policy direction.
The Monetary Policy Committee decided to maintain the Bank of Korea's benchmark interest rate at the current level of 2.50% until the next monetary policy decision, citing stable inflation and significant uncertainty about the growth trend. However, they indicated that improvements are being observed in domestic demand and mentioned the need to examine housing prices and household debt trends in the metropolitan area more closely.
Looking at the global economy, trade negotiations between the U.S. and major countries have progressed, but as the impact of tariff increases becomes apparent, the growth trend is gradually slowing, and price paths are expected to differ by country. In the international financial market, U.S. long-term government bond rates and the U.S. dollar index rose, but fell again as expectations of rate cuts by the Federal Reserve increased, while stock prices in major countries rose due to reduced uncertainty regarding tariff negotiations. Going forward, the global economy and international financial markets are expected to be influenced by U.S.-China trade negotiations, tariff directions for specific items, and changes in monetary policy in major countries.
In terms of the domestic economic situation, despite continued sluggish construction investment, consumption has recovered, and exports have also increased more than expected, mainly in semiconductors, resulting in improved growth momentum. Employment has maintained an upward trend in the overall number of employed persons, but declines have continued in major sectors such as manufacturing. Moving forward, domestic demand is expected to continue a gradual recovery due to supplementary budgets and improved consumer sentiment, while exports are forecasted to show a good trend for the time being before gradually slowing as the impact of U.S. tariffs expands. Consequently, this year's growth rate is projected at 0.9%, slightly above the May outlook (0.8%), while next year's growth rate is expected to align with the previous forecast (1.6%). The future growth path is deemed to carry high uncertainty related to U.S.-China trade negotiations, tariff impositions, and the pace of domestic demand improvements.
In July, the domestic consumer price inflation rate slightly decreased to 2.1%, while the core inflation rate (excluding food and energy) remained stable at 2.0%. The short-term inflation expectation rate (for the general public) rose slightly to 2.6% in August, up from 2.5% the previous month. Going forward, domestic inflation is expected to continue an upward trend of around 2%, due to rising prices of agricultural, livestock, and fishery products, but low demand pressure and stable international oil prices. This year's consumer price inflation is expected to be slightly above the May forecast (1.9%) at 2.0%, and core inflation is anticipated to conform to prior forecasts at a rise of 1.9%. Next year, due to sustained recovery in consumer spending, both consumer and core inflation rates are expected to be slightly above the previous projections (1.8%) at 1.9%. Future price trajectories will likely be influenced by domestic and international economic trends, exchange rate fluctuations, international oil price movements, and government price stabilization measures.
The financial and foreign exchange markets maintained a generally stable appearance. Long-term government bond rates fluctuated within a narrow range, while stock prices slightly stalled due to adjustment pressures following recent gains and changes in expectations regarding improvements in the capital market system. The won/dollar exchange rate rose due to continued demand forecasts for resident overseas investment. Household lending saw a significant reduction in the scale of increases due to government measures on household debt. Though the metropolitan housing market has experienced a slowdown in pricing trends and transaction volumes, expectations for rising housing prices remain high.
The Monetary Policy Committee will continue to monitor growth trends while ensuring that the inflation rate stabilizes at the target level in the medium term, while also paying attention to financial stability in managing monetary policy. Although the domestic economy has seen slight improvements in growth trends amid stable inflation rates, uncertainty regarding future growth paths remains high due to the influence of U.S. tariff policies. In terms of financial stability, while the growth trend in metropolitan housing prices and household debt has slowed, it is necessary to further evaluate whether these trends will stabilize, while remaining attentive to the potential for increased exchange rate volatility. Therefore, future monetary policy will maintain a dovish stance on interest rates to mitigate downside risks to growth, while carefully assessing changes in domestic and external policy conditions, price trends, and financial stability, thereby determining the timing and pace of any further interest rate cuts.