The Monetary Policy Committee held its Oct. monetary policy meeting at the Bank of Korea (BOK) headquarters in Jung-gu, Seoul, on the 23rd and kept the base rate unchanged at an annual 2.50%. In May, the Monetary Policy Committee cut the base rate by 0.25 percentage point (p), but decided to maintain the previous level at the July and August meetings. Including this decision, the committee has now kept the base rate unchanged for three consecutive meetings.
The committee judged that it needs to further examine the impact of the government's real estate measures and exchange rate volatility. The committee assessed that Korea's economy continues on an improving trend as consumption recovers and exports increase. It also said that since late last month, uncertainty over tariff negotiations with the United States has grown, increasing volatility in exchange rates and interest rates.
The committee said, "Going forward, we will check the growth trend and ensure that the inflation rate can stabilize at the target level over the medium term," adding, "We will maintain an easing stance while closely examining price trends and financial stability conditions to decide the timing and pace of additional cuts."
The following is the full text of the Bank of Korea (BOK) Monetary Policy Committee's statement on the currency policy stance.
The Monetary Policy Committee decided to conduct currency policy by keeping the Bank of Korea base rate at the current 2.50% until the next decision on the monetary policy stance. While prices continue a stable trend and growth remains highly uncertain relative to the outlook, consumption and exports are continuing to improve. Given the need to further examine the impact of the real estate measures on the Seoul metropolitan area dwellings market and household debt, as well as exchange rate volatility and other financial stability conditions, the committee judged it appropriate to maintain the current base rate level.
Regarding the global economy, growth is expected to slow moderately as the impact of U.S. tariff increases becomes visible, and inflation paths are expected to diverge by country. In international financial markets, long-term Government Bonds yields fell on the U.S. Federal Reserve's rate cuts and the resurfacing of U.S.-China trade tensions, while the U.S. dollar fluctuated considerably amid concerns over major countries' fiscal soundness. Stock prices continued strong gains, centered on the AI-related institutional sector. Going forward, the global economy and international financial markets are expected to be affected by the course of U.S.-China trade talks and item-by-item tariffs, as well as changes in major countries' currency and fiscal policy.
The domestic economy continued an improving trend with ongoing consumption recovery and solid export growth despite weak construction investment. Employment saw a larger increase in the total number of employed, but declines persisted in major sectors such as manufacturing. Going forward, domestic demand is expected to continue recovering, led by consumption, and exports are likely to show a solid trend for the time being on the back of a favorable semiconductor cycle, but the impact of U.S. tariff imposition is expected to gradually grow. This year's and next year's growth rates are expected to be broadly in line with the August projections (0.9% and 1.6%, respectively), but upside and downside uncertainties related to Korea-U.S. and U.S.-China trade talks, the semiconductor cycle, and the pace of domestic demand improvement have increased.
As for domestic prices, the consumer price inflation rate in September was 2.1%, and core inflation (index excluding food and energy) was 2.0%, maintaining a stable trend. The short-term expected inflation rate (general public) was 2.5% in September, slightly lower than the previous month (2.6%). Going forward, despite the rise in the exchange rate, domestic prices are expected to continue rising around 2% due to low demand pressures and stable international oil prices. Accordingly, this year's and next year's consumer price inflation (2.0% and 1.9%) and core inflation (1.9% for each) are expected to be in line with the August projections. The future inflation path is expected to be affected by domestic and external economic trends, exchange rate and international oil price movements, and the government's price stabilization measures.
In the financial and foreign exchange markets, stability continued, but since late September, volatility in exchange rates and interest rates has somewhat increased. The won-dollar exchange rate rose considerably due to uncertainty related to tariff negotiations with the United States and the resurfacing of U.S.-China trade tensions, and Government Bonds yields, which had been moving within a narrow range, increased on heightened vigilance over financial stability. Stock prices rose sharply on expectations of a favorable semiconductor cycle and improvements to capital market systems. Household loans saw a significant reduction in the pace of increase, but in the Seoul metropolitan area dwellings market, price gains and transaction volume expanded again.
The Monetary Policy Committee will conduct currency policy with attention to financial stability while checking the growth trend to ensure that the inflation rate can stabilize at the target level over the medium term. In the domestic economy, while prices continue a stable trend and growth is improving, uncertainties related to trade negotiations and the semiconductor outlook have increased. From a financial stability perspective, it is necessary to assess the effect of the government's additional real estate measures and be mindful of the impact of high exchange rate volatility. Therefore, future monetary policy will maintain a rate-cutting stance to ease downside risks to growth, while closely examining changes in domestic and external policy conditions and the resulting price trends and financial stability conditions to decide the timing and pace of additional base rate cuts.