BOK keeps benchmark interest rate unchanged at 2.50%

BOK keeps benchmark interest rate unchanged at 2.50%

최초입력 2025.07.10 11:15:08

(Joint Press Corps)

South Korea’s central bank kept its policy interest rate steady at 2.50 percent during its first Monetary Policy Board meeting of the second half of 2025 on Thursday.
The move is viewed as reflecting concerns that another cut after May 2025 could further fuel rising household debt and housing prices amid a recent surge in housing prices across Seoul and the greater metropolitan area.
With this rate freeze, the Bank of Korea (BOK) has gained time to assess several key developments ahead of its next meeting in August: a new household debt management plan, the impact of Phase 3 stress-based debt service ratio (DSR) regulations, the outcome of the U.S. Federal Open Market Committee (FOMC) meeting later this month, and the implementation of the government’s upcoming supplementary budget.
The BOK had already shifted toward monetary easing in October 2024 by cutting rates by 0.25 percentage point, surprising markets with the first back-to-back rate cuts since the 2008 global financial crisis a month later.
It alternated between rate holds and cuts at four meetings in the first half of 2025, maintaining an easing stance in response to weak domestic demand - especially in construction and consumption - and economic pressures such as U.S. tariffs, which have led to a downgraded gross domestic product (GDP) growth forecast of just 0.8 percent for 2025.
However, the decision to pause further rate cuts in July 2025 was largely driven by rising financial instability, particularly in real estate and household lending.
According to the Korea Real Estate Board, apartment prices in Seoul rose 0.43 percent in the fourth week of June, compared to the previous week, marking the steepest weekly increase in six years and nine months since the second week of September 2018 (0.45 percent).
Household loans, which support housing demand, also surged by 6.2 trillion won ($4.51 billion) at banks and 6.5 trillion won across the entire financial sector last month - the largest jump in eight months since October 2024, when they rose 6.5 trillion won.
In response, financial regulators introduced emergency measures on June 27th, 2025, capping mortgage loan limits to 600 million won in Seoul and the surrounding regions.
BOK Governor Rhee Chang-yong had already cautioned during a press briefing shortly after the last rate cut in May that “in a time of high market uncertainty, lowering interest rates too quickly could only inflate asset prices like real estate. We must avoid repeating the mistakes made during the COVID-19 period.”
His remarks signaled a more cautious pace of monetary easing, factoring in asset price movements.
The record-high 2.0 percentage point interest rate gap between Korea (2.50 percent) and the United States (4.25 to 4.50 percent), along with the potential stimulative effect of the upcoming supplementary budget, were also cited as reasons behind the central bank’s decision.
“The U.S. Federal Reserve (Fed) is expected to hold its rate again this month and possibly make one 0.25 percentage point cut later this year,” Hyundai Research Institute Head of Economic Research Joo Won said. “Given the strong performance of the U.S. economy, there is no urgent reason to lower rates aggressively, so the BOK will likely align its pace with the Fed.”
Chang Min, senior research fellow at the Korea Institute of Finance (KIF), added, “With the 32 trillion won supplementary budget set to inject more funds into the economy soon, the BOK will likely assess its impact before deciding on additional rate cuts.”
Nevertheless, with domestic demand still weak and U.S. tariff shocks likely to intensify, many expect the central bank to resume rate cuts once housing prices and household debt stabilize.
“If I had to choose the bigger concern, it would be the current state of the economy rather than real estate or household debt,” Cho Young-moo, head of NH Financial Research Institute, said. “Issues such as localized house price spikes or household lending should be addressed with targeted micro-policies, not broad monetary policy. I believe the BOK will cut rates once more around October.”
Ahn Ye-ha, senior researcher at Kiwoom Securities Co., expects a 0.25 percentage point cut in August 2025, while Joo and Chang anticipate one to two more cuts, possibly beginning in August.
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