Seoul: South Korea's central bank maintained its benchmark interest rate at 2.5 percent during its latest rate-setting meeting in Seoul, marking the sixth consecutive meeting without a change. This decision was driven by stronger-than-expected growth momentum and aims to safeguard financial stability in the face of a weak local currency and an unstable housing market.
According to Yonhap News Agency, the Monetary Policy Board of the Bank of Korea (BOK) unanimously agreed on the rate freeze, despite the central bank's ongoing easing cycle. Since October 2024, the BOK has reduced the benchmark interest rate by a total of 100 basis points from 3.5 percent to stimulate economic growth, maintaining the level unchanged since May 2025.
The BOK's statement highlighted stable inflation near the target level and projected continued economic growth at a stronger-than-expected pace. The board deemed it appropriate to sustain the current Base Rate while evaluating domestic and external policy environments. The bank also presented an optimistic outlook, raising its 2026 growth forecast by 0.2 percentage points to 2 percent, citing anticipated recovery in consumption and acceleration in exports and facilities investment, bolstered by a robust semiconductor sector and sound global growth.
A significant concern influencing the rate decision was the unstable property market and rising household debt. Earlier data from the Korea Real Estate Board indicated a 8.98 percent year-on-year increase in apartment sale prices in Seoul for 2025, the highest since 2013. Despite strengthened regulations to cool the overheating housing market, apartment prices continued to rise, with a 0.15 percent increase in February's second week.
President Lee Jae Myung has emphasized his commitment to stabilizing the real estate market, warning multi-home owners of the associated risks. The BOK has also prioritized foreign exchange market stability amid the won's persistent weakness. Although the local currency has recovered slightly from a multi-year low of near 1,500 won per U.S. dollar, it remains below the 1,400 won level due to supply-demand imbalances.
Concerns of further currency weakening persist amid U.S.-Iran tensions and continued foreign investor net selling of domestic stocks. Experts warn that a rate cut could lead to capital outflows, exacerbating the won's weakness. On Thursday, the won opened at 1,426.3 won against the dollar, an increase of 3.1 won from the previous session.
The BOK also focuses on the widening interest rate gap with the U.S., as a larger gap could encourage foreign capital outflows and further pressure the won. Currently, the policy rate gap between South Korea and the U.S. is 1.25 percentage points.