The Bank of Korea (BOK) kept its key interest rate unchanged on Thursday morning, aiming to ensure financial stability amid concerns over the rapid rise in housing prices and household debt.
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In a widely expected decision, the BOK's Monetary Policy Committee held the benchmark interest rate steady at 2.5% during its policy meeting in Seoul.
This move follows a rate cut in May, when the central bank reduced the rate by 25 basis points to support economic growth in light of weak domestic demand and uncertainties triggered by broad U.S. tariff measures.
Today’s decision underscores the BOK’s commitment to maintaining financial stability despite ongoing pressure to stimulate economic growth, according to the official Yonhap News Agency.
Housing prices have surged in Seoul and parts of the greater capital area, driven by improved financial conditions and expectations of further price increases under the new liberal government.
Household loans provided by South Korean banks rose by 6.2 trillion won ($4.51 billion) in June compared to the previous month, marking the largest monthly increase since August 2024. The BOK expects this upward trend to continue in the coming months.
In response, the government imposed stricter mortgage regulations late last month, capping home loan amounts in the capital region at 600 million won, and suspending mortgages for individuals owning more than one property.
Bank of Korea Governor Rhee Chang-yong previously noted that the pace of interest rate cuts would be adjusted depending on the housing market, despite the ongoing easing cycle that began in October 2024.
Following May’s rate cut, Rhee warned:
"Cutting the key interest rate too quickly could lead to asset bubbles, particularly in real estate. We must avoid repeating the mistakes made during the COVID-19 pandemic."
Analysts say holding the rate steady gives the central bank time to assess the impact of the government’s supplementary budget.
Last week, the National Assembly approved a 31.8 trillion won supplementary budget aimed at stimulating the economy and supporting citizens’ livelihoods. This comes after a 13.8 trillion won economic stimulus package passed in May.
The BOK also took into account the interest rate gap between South Korea and the United States, which currently stands at 2 percentage points. A wider gap could increase volatility in the foreign exchange market.
U.S. Federal Reserve Chair Jerome Powell has taken a cautious stance on rate adjustments, citing the resilience of the U.S. economy and ongoing uncertainties.
Source: Sky News
