Central Bank puts monetary easing on hold in July

The bank pauses its monetary easing cycle: At its 10 July meeting, the Bank of Korea (BOK) decided to leave the base rate unchanged at 2.50%, as anticipated by market analysts. As a result, the BOK paused its monetary policy easing cycle following cumulative rate reductions of 100 basis points since October 2024, leaving rates at some of the lowest levels seen in the past two years.

Rising housing market concerns and higher inflation drive the decision: Domestically, inflation and macroprudential concerns were the main drivers of the decision. Inflation rose to 2.2% in June, pushed up by stronger price pressures for food plus the base effect from the costs of agricultural and petroleum products. Meanwhile, household loans picked up amid a rebound in Seoul’s property market, raising the financial stability concerns. On the external front, the Bank noted that downside risks to the economic growth outlook are retreating, on the back of a modest recovery in consumption and exports growth. That said, tariff negotiations with the U.S. remain a risk if levies on Korean exports, including chips, exceed expectations.

Easing cycle likely to resume in Q3: Monetary policy forward guidance remained broadly accommodative, with four out of six board members open to a further cut in the next three months. Still, in a subsequent statement, Governor Rhee Chang-yong hinted that the BOK will wait until August to see how U.S. tariff policies and domestic fiscal policy affect GDP growth before adjusting the current monetary policy stance. Accordingly, our panel expects rate cuts ranging from 25 to 75 basis points by the end of 2025, with a majority of our panelists expecting a quarter-point reduction in Q3 amid higher trade frictions and sluggish 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 forecasts with financial stability and inflation risks. The Bank will reconvene on 28 August.

Panelist insight: Commenting on the outlook, ING’s Min Joo Kang said: “We believe that August may be somewhat premature for the BoK to confirm the anticipated moderation in housing prices and household debt. But the probability of an August rate cut remains quite high. It will come down to trade-negotiation results. If talks between the U.S. and Korea turn out to be unfavorable to the market—such as 25% reciprocal tariffs and additional sector tariffs on semiconductors and other major export items—an earlier cut in August could become more likely. Therefore, the exact timing of the BoK policy action will depend on these two main factors.”

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