Bank of Korea Holds Rates Steady Amid Inflation and Growth Concerns

The Bank of Korea maintained its benchmark interest rate at 2.5%, defying expectations from a majority of economists surveyed by Reuters. Policymakers adjusted their 2025 growth forecast downward to 0.9%, the slowest pace since 2020, while raising the inflation outlook to 2%.

Governor Rhee Chang-yong highlighted mounting risks from Seoul's surging home prices and household debt, constraints that limited policy flexibility. Citi Research analyst Kim Jin-wook projects a 25 basis point cut in October, noting the central bank's cautious approach to easing amid persistent economic uncertainties.

Export vulnerabilities loom as American tariff decisions remain unresolved, compounding challenges for South Korea's trade-dependent economy. The BOK's restrained rate hike cycle during the pandemic suggests limited room for aggressive cuts despite slowing growth.