the Bank of Korea's monetary policy committee kept the base rate at 2.50% per year, holding rates steady for a third straight meeting. The move is seen as a delay in cutting rates to slow the pace of home-price increases in the Seoul metropolitan area and align with the government's Oct. 15 real estate measures. The committee also appeared to factor in mounting instability in the foreign exchange market, with the won-dollar rate breaching 1,400 won amid a stalemate in recent U.S.-Korea tariff talks.
the Bank of Korea's monetary policy committee (hereinafter the committee) left the base rate unchanged at 2.50% per year at a regular meeting on the 23rd. Bank of Korea (BOK) raised the base rate from 0.5% to 3.5% between Aug. 2021 and Jan. 2023 and then held it steady for one year and seven months. It then cut rates in Oct.–Nov. last year in succession, alternated this year between holds (January, April) and cuts (February, May), and held rates again three times in a row in July, August, and October.
the Bank of Korea's monetary policy committee said in its statement on the direction of currency policy, "Uncertainty around the growth outlook remains high, but improvements led by consumption and exports are continuing, and given the need to further watch financial stability conditions such as the impact of real estate measures on the Seoul-area dwellings market and household debt, as well as exchange rate volatility, it judged it appropriate to maintain the current level of the base rate."
Ahead of the committee meeting, markets largely expected a hold. In a survey by the Korea Financial Investment Association of 100 professionals involved in bond holding and management conducted from the 13th to the 16th, 85% of respondents backed a rate hold. In ChosunBiz's own survey, all 11 experts expected a hold.
Markets view the BOK's latest decision as an intention not to pour fuel on a real estate overheating pattern. Last month, consumers' expectations for home-price gains came in at 112, up 1 point (p) from the previous month. This figure plunged after the June 27 measures lowered the mortgage loan limit to 600 million won, then rebounded as it rose in August (+2p, 111) and again in September (+1p).
Rising expectations for higher home prices are translating into real estate price increases. According to the Korea Real Estate Board (KREB) release on Oct. 16 of weekly apartment price trends for the second week of October (as of the 13th), Seoul sale prices rose 0.54% compared with before the Chuseok holiday (two weeks earlier). The increase widened by 0.13 percentage points.
On the 15th, the government designated all of Seoul and 12 areas in Gyeonggi Province, including Bundang and Gwacheon, as speculative overheating zones, areas subject to adjustment, and land transaction permit zones to rein in overheated home prices centered on the Han River belt. In those areas, gap investing—buying a home with a jeonse lease in place—has been blocked, and the loan-to-value (LTV) ratio for mortgages was lowered to 40%. However, as it has been only eight days since the measures took effect, many say it is still too early to judge the policy's impact.
Stalled U.S.-Korea tariff negotiations are also a factor delaying a cut decision. The two countries have failed to narrow differences over how to fund a $350 billion U.S.-bound investment funds vehicle. As a result, the weekly closing price for the won-dollar rate (as of 3:30 p.m.), which had been in the mid-1,300 won range, surpassed 1,400 won at the end of last month, and on the 22nd, a day before the committee meeting, it neared 1,430 won.
There is, however, room to resume rate cuts later. That is because the U.S. Federal Reserve (Fed) is widely expected to continue the rate-cutting stance it resumed last month through the end of the year. According to CME Group's FedWatch, the probability of an October rate cut was tallied at 96.7%. If the U.S. base rate drops, the Korea-U.S. rate gap will narrow, reducing the BOK's burden to cut.
The U.S. tariff policy's full-scale rollout, which is keeping downward pressure on the economy, is also increasing the need for cuts. U.S. President Donald Trump warned he could impose tariffs of up to 100% on semiconductors, Korea's top export item. If this outlook materializes, concerns about an economic slowdown are expected to grow further. In the "new government economic growth strategy" released in August, the government projected this year's real gross domestic product (GDP) growth at 0.9%. That is about half of the Organization for Economic Cooperation and Development (OECD) estimate of Korea's potential growth rate (1.9%).
Kim Seong-su of Hanwha Investment & Securities said, "Most committee members agree that they should maintain an easing stance to address growth below potential," adding, "Even with a 0.25 percentage point cut, the base rate would not fall below the neutral level (the theoretical rate at which the potential growth rate can be maintained without inflation), so a cut is possible in November."