The Bank of Korea kept interest rates unchanged as scheduled and increased its economic growth and inflation forecasts for this year.

The Bank of Korea maintained its interest rate policy and stated that it will not restart an easing cycle until it sees clear signs of improvement in financial imbalances in the housing, credit, and foreign exchange markets. The central bank kept the seven-day repurchase rate at 2.5% on Thursday. This decision was in line with the expectations of 22 out of 23 economists surveyed by institutions, with one economist predicting a 25 basis point rate cut. Along with the interest rate decision, the Bank of Korea also released its latest economic forecast report, raising this year's economic growth forecast from 0.8% in May to 0.9% and raising the inflation forecast from 1.9% to 2%. Since initiating the current easing cycle in October of last year, policymakers have cut interest rates four times. Prior to a meeting in August, they had paused policy operations due to the risks posed by rising apartment prices in the Seoul metropolitan area and increasing household debt levels. Following the relevant decisions made by the Bank of Korea, the Korean won continued to rise, with a daily increase of about 0.4%, with the exchange rate at around 1 USD to 1389.45 KRW. The yield on the 3-year Korean government bond only decreased by less than one basis point, falling to 2.40%. Economist Jeong-Woo Park of Nomura Holdings stated, "The board seems to prefer waiting for further stabilization of household debt and housing prices before taking action, but once housing supply measures are introduced in September, they are likely to have no reason to delay any longer, so I expect a rate cut in October." Bank of Korea Governor Lee Ju-yeol stated in July that four committee members had indicated the possibility of lowering interest rates within three months. However, the committee ultimately decided to maintain the interest rate unchanged, highlighting the necessity of ensuring financial stability and balancing the gap between the interest rates set by the Bank of Korea and the Federal Reserve. Park added, "Due to expectations that the export environment will not improve next year, they may argue the need to lower interest rates to support domestic demand and promote economic growth. However, the effectiveness of this approach remains to be seen." Lee Ju-yeol plans to hold a press conference later on Thursday, where he is expected to discuss the future direction of interest rates. He is likely to reveal whether any committee members dissent from this decision and provide the committee's expectations for monetary policy in the next three months. Bloomberg economist Hyosung Kwon stated, "We expect the Bank of Korea to restart its easing policy in the fourth quarter, possibly in October, when it will assess the impact of the government's housing supply plan and see more obvious signs of stability in the real estate market." The housing market in Seoul remains a constraint on interest rate cuts. Even after the government implemented restrictions on housing loans in June, apartment prices in the capital city continued to rise. Household debt in the second quarter grew at the fastest pace since 2021, primarily due to an increase in mortgage lending, highlighting sustained demand. To prevent overheating in the real estate market, the South Korean government is taking new measures and planning to introduce a new measure to increase supply soon. Kim Yong-beom, a senior secretary to the South Korean President, stated last week that the measure is in its final stages and is being coordinated with relevant ministries.