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South Korea’s central bank is set to keep interest rates steady as a soft currency, rising home prices, and persistent inflation delay expectations for new rate cuts.

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A Cautious Pause Amid Growing Pressures

South Korea’s central bank appears ready to keep interest rates right where they are this week, even as the nation confronts a shaky currency, a surging housing market, and signs of accelerating inflation. Most economists now believe the Bank of Korea (BOK) will resist easing monetary policy this year, pushing expectations for its next rate cut into early 2026.

From Expected Cut to Extended Standstill

Not long ago, many analysts expected the BOK to trim borrowing costs during its late-November meeting. But the economic landscape has shifted quickly. Housing prices continue climbing, fueled by a long-standing shortage of available homes. Meanwhile, the Korean won has spent four straight months sliding against the U.S. dollar intensifying concerns about capital outflows and import-driven inflation.

In this more precarious environment, economists surveyed by Reuters now overwhelmingly anticipate the BOK will leave its benchmark rate at 2.50%, the level it has maintained since May. The majority now projects the first possible rate cut to land in the first quarter of 2026, pushing earlier forecasts deeper into the future.

Growth and Inflation Complicate the Picture

Fresh economic indicators have strengthened the case for caution. South Korea’s economy expanded 1.2% in the third quarter, its fastest pace in over a year, suggesting that growth momentum is still intact. At the same time, consumer prices jumped 2.4% in October, overshooting the BOK’s 2% inflation target.

These competing forces faster growth and stubborn inflation have left policymakers wary of delivering another round of easing too soon. Since October 2024, the central bank has already introduced 100 basis points of cuts, and it now appears keen to evaluate how those moves ripple through the economy before making new adjustments.

A Reuters poll conducted between November 18 and 24 found that 32 of 36 economists expect the BOK to keep its base rate steady this week. Only a small group four respondents anticipate a quarter-point cut to 2.25%.

Real Estate Weakness and Currency Jitters Weigh Heavily

Economists say the central bank is being boxed in by two persistent challenges: a heated property market and a fragile currency.

Krystal Tan, economist at ANZ, noted that neither of these issues has improved enough to justify renewed easing. She explained that the factors prompting the BOK to pause in October “remain firmly in place,” adding that she now sees the next rate cut arriving sometime in the first three months of 2026.

According to Tan, it’s too soon to assume the BOK has reached the end of its easing cycle, even with the recent pause. Economic growth continues to trail the country’s long-term potential, she said, and a wave of expected U.S. Federal Reserve cuts in 2026 could eventually relieve the pressure weighing on the won.

The Fed has already trimmed rates by 150 basis points since September 2024, with more reductions anticipated moves that could reshape global capital flows and give Korean policymakers greater breathing room.

One More Cut Likely Before End of Q1 2026

While economists disagree on the exact path forward, many expect at least one more rate cut before the end of the first quarter next year. Among experts offering long-term forecasts, 60% or 17 of 28 respondents predict a reduction by late March 2026.

Of that group, fourteen expect the policy rate to settle at 2.25%, while three see the possibility of a deeper move toward 2.00%. Eleven others believe the BOK will keep rates unchanged.

Economists who support another round of easing argue that South Korea’s economy is still expanding below its potential and that the BOK itself has hinted at a willingness to maintain a “rate-cut stance” to support growth if needed.

Median forecasts place the base rate at 2.25% throughout 2026, slightly higher than predictions from October, which centered on 2.00%.

Adam Samdin, economist at Oxford Economics, emphasized that the broader direction of policy remains clear even if the timing is not. “Rates are still headed downward,” he said, noting that the economy’s negative output gap and the government’s desire to reinforce growth continue to favor future easing.

A Slow Path Forward for the Korean Economy

For households and businesses, an extended hold on interest rates means borrowing costs will remain elevated for a while longer. Mortgage pressures already intense due to soaring property prices could persist into next year. Export-driven industries, which rely heavily on currency stability, may continue to feel the strain of a weak won.

The central bank expects the economy to expand by 0.9% this year, its slowest pace since the pandemic-era contraction of 2020. With growth sluggish and inflation still above target, policymakers face a delicate balancing act: preventing economic overheating while avoiding a deeper slowdown.

If the Fed proceeds with aggressive easing in 2026, it could eventually weaken the dollar, strengthen the won, and give the BOK room to resume cutting rates. But until those shifts materialize, South Korea’s monetary policy appears firmly anchored in wait-and-see mode.

Stability Today, Uncertainty Ahead

The Bank of Korea’s expected decision to hold interest rates reflects a complex mix of financial vulnerabilities and macroeconomic pressures. While another rate cut is still likely perhaps as early as the first quarter of 2026 the central bank is signaling that it will prioritize caution over speed.

As the housing market sizzles, inflation stays elevated, and the currency wavers, policymakers remain acutely aware that any misstep could magnify risks. For now, the message is clear: stability comes first, even if that means delaying relief for borrowers and businesses.

 

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