Bank of Korea to Hold Rates Steady Amid US Fed Pressure
UPDATE: The Bank of Korea (BOK) is set to maintain its policy rate at 2.5% during its upcoming review on July 10, 2025. This decision comes as inflation concerns loom and the US Federal Reserve continues to influence global monetary policy.
Economists from the Korea Economic Daily (KED) predict that 18 out of 20 surveyed experts foresee the BOK standing pat on rates, with only two anticipating a cut to 2.25%. The BOK’s cautious stance reflects serious concerns about financial stability, particularly in light of soaring household debt and heightened risks in the property market.
Shin Kwanho, an economics professor at Korea University, emphasized, “Property market risks remain elevated.” Meanwhile, Park Seok Gil, head of research at JPMorgan in Seoul, stated that “financial stability considerations will weigh heavily” on the decision-making process during the committee’s meeting.
IMMEDIATE IMPACT: The BOK’s decision to hold rates steady is critical as it navigates the complex landscape influenced by the US Fed. A widening interest rate gap with the US could exert pressure on the South Korean won, according to Lee Sang-ho, head of economic research at the Federation of Korean Industries.
Moreover, analysts including Lee Jae-man from Hana Securities noted that while Federal Reserve Chair Jerome Powell made dovish remarks at the recent Jackson Hole meeting, these comments are insufficient to alter the Fed’s course significantly. As a result, the BOK is likely to follow the Fed’s lead closely.
While the consensus leans heavily toward maintaining the current rate, two economists believe a preemptive cut may be warranted. Kathleen Oh, chief economist at Morgan Stanley, indicated that potential increases in US tariffs could justify early action from the BOK. Additionally, Lee Yoon-soo, an economics professor at Sogang University, suggested that if the BOK does not act this week, a rate cut could be on the agenda for October.
Looking ahead, survey participants expect the BOK to implement just one rate cut before the end of the year, bringing the base rate down to an average of 2.23% by December.
GROWTH PROSPECTS: Economic growth remains sluggish, with KED economists projecting a 0.94% GDP expansion for 2025, closely aligned with the Finance Ministry’s forecast of 0.9%. Analysts warn that even with two rounds of supplementary budgets, GDP growth may only improve by 0.1 percentage points.
Despite hopes for a recovery in private consumption, analysts such as Min Jihee from Mirae Asset Securities caution that construction and facility investments are likely to stay weak, with net exports’ contribution to the economy dwindling.
During the last monetary policy review on July 10, the BOK decided to keep its policy rate stable, citing stable inflation at 2.2% in June, slightly above its 2% target.
As economic pressures mount, the BOK’s cautious approach to monetary easing raises questions about future policy directions in a challenging economic landscape. Stay tuned for updates as this story develops.
