Rate held steady for the first time following consecutive hikes in July and August… Unanimous decision by the Monetary Policy Board
This year's and next year's growth forecasts exceed previous projections… Room for additional rate hikes left open
The Bank of Korea (BOK) has kept its benchmark interest rate unchanged at 3.00% per annum. This marks the first pause after two consecutive rate hikes in July and August. Backed by booming semiconductor exports, robust facility investments, and a sustained recovery in private consumption, the central bank projected that economic growth for this year and next will surpass previous forecasts.
The Monetary Policy Board of the BOK held its monetary policy decision meeting on the 22nd and voted to maintain the current base rate at 3.00%. All seven board members voted in favor of the freeze.
Following a raise from 2.50% to 2.75% in July, the BOK delivered another 25-basis-point hike in August. Having raised the base rate by a total of 50 basis points over the two meetings, the central bank opted to hold rates steady this time.
The board noted that high uncertainties persist regarding Middle East geopolitical tensions and the monetary and fiscal policies of major economies. The won-dollar exchange rate has fallen significantly, aided by improved foreign exchange supply and demand dynamics stemming from a large current account surplus, while household lending has shifted to a downward trend. Conversely, housing-related loans continued to rise, and housing price increases in the greater Seoul metropolitan area widened once again.
Growth Forecasts Exceed Previous Projections… Next Year's Inflation Also Expected to Rise
The BOK projected that South Korea's economic growth rates for this year and next will comfortably exceed its August forecasts of 3.3% and 2.9%, respectively. The central bank anticipates that the upward momentum in exports and investment, fueled by a thriving semiconductor cycle, will persist, and that consumer spending recovery will broaden on the back of improved income conditions.
While consumer price inflation and core inflation for this year are expected to largely align with previous projections of 2.7% and 2.5%, respectively, next year's figures are projected to surpass earlier forecasts of 2.3% and 2.5%. The central bank explained that accumulated cost-push pressures are being passed on to prices, while demand-side pressures are also mounting.
The Monetary Policy Board assessed that while the domestic economy maintains strong growth momentum, inflation continues to hover around the 3% range and financial stability risks remain. The BOK plans to determine the timing and pace of future rate hikes while closely monitoring inflation trends, economic growth trajectories, and financial stability conditions.
The final base rate decision meeting of the year is scheduled for November 26. The BOK will comprehensively assess growth and inflation trends alongside financial stability to decide on any additional rate increases.
