Bank of Korea holds rate at 2.5% as tighter property rules kick in
The Bank of Korea warned that volatility is likely to increase after the Fed raises further interest rates, following US Federal Reserve Chairman Jay Powell’s speech in Jackson Hole. Photographer: SeongJoon Cho/Bloomberg via Getty Images
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South Korea’s central bank left its benchmark interest rate unchanged at 2.5% on Thursday, extending a pause since May as policymakers continued to flag household debt as a key risk.
The decision was in line with expectations of economists polled by Reuters and came after the introduction of stricter real estate measures in Seoul to restrict borrowing.
on October 15 South Korean media reported Tighter property rules, including tighter credit limits, will now apply in all 25 districts of Seoul and 12 more districts in the surrounding Gyeonggi Province.
Previously tightened rules applied to only four of Seoul’s 25 districts.
Household debt remains a major concern for the Bank of Korea, which has been reluctant to cut interest rates for fear of increasing demand for housing and raising debt levels.
“Housing inflation in Seoul has been top of mind for policymakers this year, a critical constraint on additional easing in the second half of 2025,” Bank of America analysts said in an Oct. 20 note.
They noted that despite earlier cooling measures in June and September, house prices in central Seoul accelerated again in mid-September.
“With such measures, a sequential decline in home transactions is expected in the coming months, but in our view it is still difficult to say whether the price increase can be fully contained.” they said.
Stalled trade talks
The interest rate decision comes at a time when South Korea faces uncertainty over its trade relationship with the United States and both sides are struggling to finalize the details of the interest rate decision. An agreement was reached on July 30.
Under the agreement, the Asian country will invest $350 billion in the United States, but South Korean President Lee Jae Myung warned Reuters interview It is stated that transferring the entire amount in cash could trigger a financial crisis reminiscent of 1997.
negotiators He will reportedly visit Washington this week It will finalize the terms before the APEC Summit to be held in South Korea on October 31.
At its last meeting in August, the BOK increased its 2025 inflation forecast to 2% from 1.9% in May, while the GDP growth outlook for the year was also revised to 0.9% from the previous 0.8%.
Domestic demand is expected to show a “modest recovery” due to the additional budget and improvement in consumer confidence.
“Exports are likely to show positive movements for some time, but are also likely to slow gradually as the effects of US tariffs expand,” the central bank said.
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