The Bank of Korea has maintained its interest rate unchanged for the fourth consecutive time, with stable growth coexisting with ongoing financial risks.

The Bank of Korea, as widely expected by the market, decided to keep its benchmark interest rate unchanged. Strong economic growth provides the authorities with space to continue focusing on ensuring that the recovery in the real estate market does not lead to financial instability. The Bank of Korea on Thursday kept its 7-day repurchase rate unchanged at 2.5% for the fourth consecutive time. This decision was in line with the expectations of 21 out of 24 economists surveyed, with the remaining three expecting a 25 basis point rate cut. This extends the rate pause that began in July this year following four consecutive rate cuts since October 2024. In addition to the rate decision, the Bank of Korea released updated forecasts, raising its growth forecast for 2026 from 1.6% in August to 1.8%, and increasing its growth forecast for 2025 to 1%, reflecting steady output in the third quarter supported by strong exports and private consumption recovery. Next year's inflation forecast was also raised from 1.9% to 2.1%. "Given the expected economic growth of around 1.8% next year, I still think a rate cut is an option, and I expect the terminal rate to be around 2.25%," said Ahn Yea-ha, an analyst at Kiwoom Securities Co. "Currently, the Bank of Korea appears to be more focused on financial stability risks, which is why the committee decided to stand pat again, but I believe that the door for another rate cut remains open once these concerns ease." After the Bank of Korea raised its inflation forecasts for the next two years, South Korean bond futures extended their losses. South Korea's 10-year futures fell 33 ticks to 114.24, while 3-year government bond futures fell 14 ticks to 105.72. The Korean won exchange rate remained stable. Policymakers are facing conflicting challenges: preventing the recovery of Seoul's real estate market from further stimulating household debt while supporting the economy in the face of potential resistance from higher US tariffs. Despite new measures taken by the government to cool the market, Seoul apartment prices have risen for 42 consecutive weeks as of November 17, exacerbating concerns about financial instability. Price trends largely align with the Bank of Korea's forecasts, although the core consumer price index for October was slightly higher than expected. Prices rose 2.4% year-on-year in October, the fastest pace since July 2024. The central bank stated that consumer inflation is expected to "gradually slow down" as oil prices decline and travel costs stabilize. Prior to Thursday's decision, Governor Lee Ju-yeol reaffirmed the committee's inclination toward an accommodative stance in an interview earlier this month, but also indicated that the timing, magnitude (or direction) of any future rate adjustments would depend on subsequent data. In October, Lee said that four committee members were willing to consider a rate cut within three months, down from five in August. Analyst Hyosun Kwon said, "The Bank of Korea's decision to keep the policy rate at 2.5% is in line with our expectations and appears to be the end of an easing cycle rather than just a pause. The renewed rise in Seoul property prices has heightened financial stability concerns, and stronger growth has given policymakers space to wait before considering further accommodation." The rise in property prices remains a focus. Driven by redevelopment projects and improved market sentiment, Seoul apartment prices have risen for 42 consecutive weeks as of November 17. Lee Ju-yeol warned that the rise in property prices is "far beyond expectations," and a rate cut could reignite the risk of speculative purchases. Mortgage loans increased by 11.6 trillion won in the third quarter, driving overall household credit growth. "The main uncertainty lies in the real estate market, as Seoul property prices have risen significantly since the beginning of the year," wrote Gareth Leather, Senior Economist for Asia at Capital Economics, in a report after the decision. "Further easing may only materialize when the central bank sees evidence of the property sector responding to this." Currently, trade tensions appear to be easing. South Korea and the United States reached a long-delayed tariff agreement this month, with Washington setting a 15% tariff rate on goods imported from South Korea. While the tariff level remains higher than before Trump began his second presidential term, the resolution of the negotiations has removed some uncertainty for exporters. The agreement also includes provisions for South Korean companies to invest $350 billion in US strategic sectors and deeper defense ties. Recent trade data shows continued strength, with chip exports growing nearly 27% in the first 20 days of November, and car exports increasing by 23%. However, policymakers warned that export momentum may weaken in 2026 amid persistent high tariffs and global demand risks. Financial markets remain fragile. The Korean won has plunged over 2% this month to near a 16-year low. This level has triggered verbal intervention and coordinated responses with the National Pension Service. The depreciation of the Korean won against the US dollar may stimulate inflationary pressures. South Korean Finance Minister warned on Wednesday that authorities would take action if they see excessive volatility in the foreign exchange market. Finance Minister Koo Yun Cheol said that if foreign exchange fluctuations "widely expand," officials would "seriously respond." Governor Lee Ju-yeol is scheduled to hold a press conference later on Thursday, where he is expected to outline the committee's policy rate path and disclose any dissenting votes. The market will pay attention to whether he maintains guidance that accommodative policy remains under consideration, or shows deeper concerns about financial stability, which could delay market expectations for policy changes.