Aerial view of Seoul downtown city skyline with vehicle on expressway and bridge cross over Han river in Seoul city, South Korea.
Mongkol Chuewong | Moment | Getty Images
South Korea’s central bank kept its policy rate unchanged at 2.5% for its second straight meeting to assess housing prices in the capital further, after prices had spiked earlier in the year.
The move was also in line with expectations of economists polled by Reuters.
The Bank of Korea said that inflation was stable and economic growth had shown “modest improvement,” but warned that housing prices in Seoul and its surrounding areas, along with household debt, needed closer monitoring.
The central bank said household loan growth has slowed sharply, but expectations for higher home prices remain strong.
The BOK also upgraded its inflation forecast for 2025 to 2% from its May forecast of 1.9%, while the GDP growth forecast for the year was also revised to 0.9% from 0.8% previously.
It expects domestic demand to make a “modest recovery,” due to a supplementary budget and improvement in consumer sentiment.
“Exports are likely to show favorable movements for some time, but are likely to gradually slow as the impacts of U.S. tariffs expand,” the central bank said.
In its previous meeting, the BOK had also held rates, citing a need to assess the impact of recent measures aimed at cooling Seoul’s housing market.
The central bank decision came just days after South Korean President Lee Jae Myung met U.S. President Donald Trump earlier this week, which led to a series of agreements between both sides.
These include multibillion-dollar investment pledges from South Korean companies, record $50 billion aviation purchases by Korean Air, and cooperation in areas such as shipbuilding and energy.
Under a July trade deal, Seoul would invest $350 billion in the U.S., including $150 billion for shipbuilding. Seoul then saw its so-called “reciprocal” tariffs for its exports to the U.S lowered to 15% from 25%, including for automobiles.
The country had seen net exports power its growth in the April to June period to a better-than-expected showing, with GDP expanding 0.6% quarter over quarter and 0.5% from a year ago.
Exports of goods and services make up about 44% of South Korea’s GDP in 2023, according to the latest figures from the World Bank, with the U.S. as its second-largest export market, after China.
A note by Bank of America analysts said the BOK would be open to cutting its policy rates in the next three months, with a possible rate cut in October.
They also expected another cut in the first half of 2026 to keep rates stable at 2%.
Inflation in South Korea also seems supportive of a rate cut, coming at 2.1% in July and just above the BOK’s target of 2%.
