The Bank of Korea on Thursday held its benchmark interest rate steady at 2.50% for a second consecutive month, following the government’s stronger-than-expected measures to rein in mortgage loan growth and the passage of a new extra budget by the National Assembly last week.
Rhee Chang-yong, governor of the central bank, said its rate-setting committee concluded to take time to assess the impact of the policy measures that took effect in late June, before implementing any further rate move.
A rebound in exports and private consumption also supported the decision to pause monetary easing. Stabilizing inflation offered temporary relief to Asia’s fourth-largest economy as well, despite growing uncertainty from US tariff hikes.
Thursday’s rate decision marked the second consecutive month the Bank of Korea held interest rates steady at 2.50%, following a 25-basis-point cut in May.
“With housing prices in the Seoul metropolitan area rising sharply and household debt growing at a faster pace, we determined it’s necessary to assess the impact of the recently tightened lending curbs,” Rhee said at a press conference after the monetary policy meeting.
On June 27, the government announced a cap on mortgage loans of 600 million won ($440,000) per household for homes in the Seoul metropolitan area, regardless of income.
It represented the government’s toughest policy measure in decades to cool the overheated housing market.
The governor reiterated his dovish outlook for South Korean economy and reaffirmed the bank’s’ monetary easing stance. Exports are expected to decrease on the back of Trump administration’s tariff hikes, although the latest supplementary budget will likely boost consumer confidence.
The central bank has paced its rate cuts, which began in late 2024, as the rapid growth in household loans and surging home prices outweighed concerns over an economic slowdown.
Still, Rhee last month emphasized a cautious approach to monetary easing, warning that aggressive rate cuts could fuel asset bubbles and heighten currency volatility.
Inflation is expected to stay in the 2% range in line with the BOK’s forecasts in May. Rhee cited stabilizing crude oil prices and soft demand for stable inflation.
“We’ll maintain our monetary easing stance to ease downside risks to growth, but will determine the timing and pace of any further rate reductions, closely monitoring changes in domestic and external policy conditions, inflation trends and financial stability,” Rhee told reporters.
By Jin-gyu Kang
joseph@hankyung.com
Yeonhee Kim edited this article.
