The Bank of Korea held its benchmark interest rate steady at 2.5 percent for the fourth consecutive time on November 27 amid a sliding won and housing market instability. The central bank raised its growth forecast to 1.0 percent for this year and 1.8 percent for next year. The decision balances economic recovery in consumption and exports against financial stability risks.
The Bank of Korea's Monetary Policy Board decided to keep the benchmark rate at 2.5 percent during its meeting in Seoul on November 27. This marks the fourth consecutive hold since May, following a cumulative 100 basis-point cut from 3.5 percent since October last year. Governor Rhee Chang-yong stated in a briefing, "Along with inflation having risen somewhat, the economy continues to improve, driven by consumption and exports," citing uncertainties in the growth outlook and risks to financial stability as reasons for maintaining the current level.
The economic outlook is upbeat. Third-quarter GDP grew 1.2 percent from the previous quarter, the fastest in six quarters. The central bank raised its 2025 growth forecast from 0.9 percent in August to 1.0 percent, and 2026 from 1.6 percent to 1.8 percent. However, risks persist from the global trade environment and semiconductor sector developments.
The won's depreciation is a key concern. It closed at 1,477.1 won per dollar on Monday, the weakest since April 9 (1,484.1 won), the lowest since the 2009 global financial crisis. Rhee noted, "The won is depreciating more than other currencies, partly due to local investors' overseas stock purchases," warning it could push up inflation. In response, the finance ministry, BOK, National Pension Service, and welfare ministry launched a four-way consultative body for FX stability.
The housing market remains problematic. On October 15, the government designated 21 additional Seoul districts as speculative zones, covering all 25 districts with stricter rules, and lowered the mortgage loan cap to 200 million won from 600 million won. Tighter debt service ratio regulations apply since July. Yet, according to KB Real Estate, Seoul apartment prices rose 1.72 percent in November from the previous month, the sharpest monthly gain since September 2020. Transactions declined, but price rise expectations persist.
Inflation rose in October, with CPI at 2.4 percent and core at 2.2 percent. Forecasts were revised up to 2.1 percent for 2025 CPI (from 2.0 percent) and 2.1 percent for 2026. Five of six board members supported the freeze, with three raising the possibility of cuts within three months. Rhee said, "We are weighing both further rate cuts and holding rates... Future decisions will be data-dependent," adding no rate hike discussions occurred. This was the central bank's final meeting of the year.
