South Korea's central bank maintains a dovish stance: keeps interest rates unchanged and downplays expectations of a rate cut in November.

The Bank of Korea maintained its policy setting unchanged and indicated a continued inclination towards further easing, despite trying to downplay expectations of a rate cut in the near future. The Bank of Korea on Thursday kept the seven-day repurchase rate at 2.5%, with one member voting against, the same number as in the last meeting in August. This decision was in line with the expectations of 23 out of 25 surveyed economists. It continues the pause in rate hikes that began in July, after four rate cuts since October last year. Governor Lee Ju-yeol said after the meeting that it is not yet clear whether conditions for a rate cut will be met at the next policy meeting on November 27. He pointed out that out of the six members, four were willing to cut rates in the next three months, down from five in the previous meeting. Lee Ju-yeol stated that the forward guidance had shifted from "5 in favor-1 against" to "4 in favor-2 against," reflecting more concern for financial stability. While the easing bias remains, he noted that the potential size and timing of a rate cut have been adjusted. Following Lee Ju-yeol's remarks, the Korean won fell, dropping to around 1441 won against the dollar, the weakest level since April; the Korean stock market also turned from gains to losses, and the three-year government bond yield rose. Some economists believe that this change indicates policymakers becoming more cautious about the pace of easing. Barclays economist Bumki Son said that given the possibility of an export-driven growth recovery next year, the Bank of Korea may only cut rates one more time in the current cycle. "With the board opting not to cut rates this time, an adjustment in timing seems natural; and assuming current conditions persist, the potential size of a rate cut may also be adjusted as it may be harder to reach consensus within the board," added Bumki Son. As the Korean real estate market continues to rise, policymakers are sending cautious signals. As of October 13, apartment prices in the capital have risen for 37 consecutive weeks, despite government measures aimed at curbing demand. The latest weekly data will be released later on Thursday. "Regardless of whether there is a bubble in the real estate market, the prices in the greater Seoul area are relatively high compared to national income and social stability," Lee Ju-yeol said. Policymakers are concerned that the continued rise in the real estate market and the increase in mortgage debt levels could exacerbate financial instability. Economist Hyosung Kwon said, "We expect the Bank of Korea to leave room for further rate cuts - under the baseline scenario, it may restart rate cuts in November, depending on whether the family loan restrictions announced on October 15 are effective in cooling the real estate market." Economists have differing views on the Bank of Korea's policy path. Some believe that the rate cutting cycle has ended, while others expect a return to easing once real estate risks subside. Citigroup believes that with pressure on house prices and exchange rates, the benchmark interest rate will remain at 2.5%; while Morgan Stanley expects the Bank of Korea to cut rates in November as new housing restrictions take effect. Bank of Korea data shows that household credit growth slowed to 2% last month, the lowest level since March, while mortgage loans grew by 2.5%. This divergence highlights the challenges policymakers face: stimulating growth while avoiding excessive leverage related to real estate. The South Korean government introduced a new round of housing restrictions last week to cool prices in the greater Seoul area. Measures include tightening the limit on mortgage loans based on property value, expanding the regulation area, and accelerating the timetable for raising the risk weights on bank housing loans. Authorities said these measures are aimed at diverting credit away from real estate and preventing excessive funds from flowing into the housing sector. Inflation remains close to the Bank of Korea's target of 2%, creating space for accommodative policy if other conditions allow. Consumer prices rose by 2.1% year-on-year in September, up from 1.7% in August, due to the expiration of temporary reductions in telecommunications fees. Core inflation increased by 2% year-on-year. Policymakers said that potential price pressures are still under control. Economists are closely watching export performance, as US tariffs have begun to affect key export products such as automobiles. South Korea-US trade negotiations are still at a standstill, with both sides working to finalize details of a $350 billion investment commitment related to an agreement to keep the maximum tariff on Korean goods at 15%. The Bank of Korea estimates that US tariffs will drag down economic growth by 0.45 percentage points this year and by 0.6 percentage points by 2026. In August, the bank raised its growth forecast for this year from 0.8% in May to 0.9%, a prediction in line with the International Monetary Fund's earlier forecast. Authorities also need to closely monitor the Federal Reserve's actions, as any divergence in policy trajectories could trigger exchange rate fluctuations. "Concerns about the exchange rate have intensified since August, and members who are more sensitive to exchange rate changes may find it difficult to pursue easing if such conditions persist," said Barclays' Bumki Son.