Korea: Central Bank leaves rates unchanged in October
Bank stands pat as expected: At its meeting on 23 October, the Central Bank decided to leave the base rate unchanged at 2.50% for the third successive meeting, as expected by market analysts. The rate thus remains at its lowest level since October 2022.
Stable inflation and solid economic growth drive the decision: The decision to maintain the current interest rate was influenced primarily by stable inflation and continued improvement in economic growth, which has been driven mainly by consumption and exports. Additionally, the depreciation of the won likely contributed to the decision. Finally, the Central Bank underlined the need to monitor financial stability conditions, including the effects of real estate market stabilization measures on the housing market and household debt, as well as exchange rate volatility.
Cut expected ahead, but board is less dovish: Four out of six board members indicated they are open to another rate cut in the next three months, down from five in August, highlighting a more cautious stance toward monetary policy easing. That said, the majority of our panelists still expect a 25 basis point cut by end-December 2025. However, almost all of our panelists see the easing cycle ending in Q1 2026.
The Bank will reconvene on 27 November.
Panelist insight: Commenting on the outlook, analysts at Nomura states:
“In the near term, we expect the BOK to leave the door open to further rate cuts as the output gap remains negative. However, with downside risk to the growth outlook subsiding, we believe the BOK will likely prioritize financial stability over boosting growth. We also estimate that the policy rate is slightly below its optimal level after taking account of financial stability.”