Seoul housing prices are overheated or delaying interest rate cuts. Economists predict that the Bank of Korea will stand pat this month.

More and more economists expect that the Bank of Korea will maintain interest rates this month, despite most board members expressing willingness to cut rates, the plan to further reduce borrowing costs will be delayed; the reason being the increasing financial stability risks as housing prices in Seoul rebound. Kathleen Oh, chief economist for Morgan Stanley in South Korea, said that Morgan Stanley expects the Bank of Korea to pause rate cuts in October, and then resume them in November, which differs from the bank's previous view that action would be taken this month. She added that although the fundamentals of the South Korean economy have not changed much since August, the rebound in housing prices suggests policymakers will wait to assess the impact of upcoming housing measures. Oh wrote in a report, "We believe that the rate-cut cycle of the Bank of Korea may be postponed, rather than stopped. We think the government may introduce significant additional real estate measures this week to curb overheating in the fourth quarter and pave the way for further measures next year." As of the end of September, apartment prices in Seoul had risen for the 35th consecutive week, despite measures taken by the South Korean government to curb demand, the price increases are accelerating. Rising prices pose a challenge for the Bank of Korea, which has kept interest rates unchanged at its last two meetings due to financial stability risks related to real estate. At the Bank of Korea's latest meeting on August 28, five out of six board members expressed willingness to cut rates in the next three months. Officials said that the loose policies of the Federal Reserve will provide more room for the Bank of Korea to focus on economic growth. Since October 2024, the Bank of Korea has cut rates four times, with its next policy meeting scheduled for October 23. HSBC also predicts that the Bank of Korea will hold rates steady this month. Jin Choi, an economist at the bank, wrote in a report last week, "Recent communication has clearly turned hawkish due to heightened concerns about financial stability." He also added that with economic growth expected to remain weak, there is still room for rate cuts based on forward-looking guidance. HSBC also mentioned external stability risks, stating that the pressure on the South Korean won remains due to uncertainty in U.S.-South Korea trade negotiations and the proposed $350 billion investment commitment. The bank currently expects the Bank of Korea to cut rates by 25 basis points in November and February, but warns that "the risk tends to be further delayed." South Korea's overall economy is still under pressure as negotiations with the U.S. are deadlocked on tariffs and investment commitments. According to a trade agreement reached in July, the U.S. government imposes a 15% tariff on South Korean goods, but subsequent negotiations have stalled, including proposals on currency swap arrangements. This means that the U.S. has not yet issued an executive order to reduce car tariffs from 25% to 15%, putting South Korean automakers at a disadvantage compared to Japanese competitors. Oh from Morgan Stanley said that the policy outlook for 2026 remains "unclear" as housing sensitivity rises ahead of local elections and export risks continue. Oh pointed out, "Given the confirmation from the statements of members of the Monetary Policy Committee, we now believe that the Bank of Korea has more serious concerns about the real estate market than expected, unless South Korean exports face unexpected shocks, we now believe that the sensitivity of the real estate market is more important than the uncertainty of exports."