Central Bank leaves rates unchanged in August

Central Bank holds as expected: At its meeting on 28 August, the Bank of Korea (BOK) decided to leave the base rate unchanged at 2.50%. The decision matched market expectations and marked the second successive pause after May’s 25 basis points interest rate cut.

Overvalued housing market drives the hold: Macroprudential concerns were the main driver of the hold: Signs of a possible house-price bubble in Seoul and surrounding areas continued to alarm policymakers despite recent laws to improve household debt management. Also influencing the decision to hold, the Bank marginally upgraded its 2025 economic growth forecast to 0.9% due to the government’s recent fiscal stimulus and the U.S. cutting planned tariffs on South Korean merchandise exports to 15% from 25%. These factors outweighed the fact that inflation remained around the Central Bank’s 2.0% target in July, and the fact that it should remain under control in the coming months due to soft demand-side pressures and declining oil prices.

BOK likely to ease by the end of 2025: Five out of six board members said they were open to a further cut in the next three months. Accordingly, all of our panelists expect at least a 25 basis points cut in Q4 amid higher trade frictions and still-frail economic growth. That said, the pace and scale of future rate cuts will likely depend on incoming economic data and the need to balance economic growth with financial stability and inflation risks. The Bank will reconvene on 23 October.

Panelist insight: Commenting on the outlook, ING’s Min Joo Kang said: “Inflation below 2% and a cautious growth outlook should support further easing measures. We continue to expect a 25 bp cut in October, followed by another in the third quarter of 2026. The timing of rate cuts in 2026 could move to the first half if the Fed eases faster or financial stability improves more than expected.”

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