South Korea's Central Bank Keeps Benchmark Rate Unchanged for Fourth Consecutive Time, Financial Stability Becomes Primary Policy Consideration

The Bank of Korea announced on Thursday that it would keep the 7-day repurchase rate unchanged at 2.5%, marking the fourth consecutive time it has held steady. This decision was in line with market expectations; 21 out of 24 surveyed economists had predicted the rate would remain unchanged, while the remaining three anticipated a 25-basis-point cut.

The Bank of Korea stated that steady economic growth has provided it with policy space, allowing it to focus more on preventing financial instability risks that may arise from a rebound in the real estate market.

On the same day, the central bank updated its macroeconomic forecasts: it raised the 2025 real GDP growth forecast to 1.0% and increased the 2026 growth forecast from the August prediction of 1.6% to 1.8%. This adjustment primarily reflects output performance in the third quarter, supported by strong exports and a steady recovery in private consumption. Regarding inflation, the 2026 Consumer Price Index (CPI) forecast was raised from 1.9% to 2.1%.

Although overall price trends were largely in line with expectations, the core CPI rose 2.4% year-on-year in October, the fastest increase since July 2024, slightly exceeding expectations. The central bank noted that future inflation is "expected to gradually slow down," citing reasons including the year-on-year decline in oil prices and the stabilization of travel costs.

The South Korean won has depreciated by over 2% so far this month, hitting a nearly 16-year low, which has prompted verbal intervention from authorities and a coordinated response with the National Pension Service. Finance Minister Koo Yun Cheol warned on Wednesday that the government would "respond seriously" if "excessive volatility" occurs in the foreign exchange market. The depreciation of the won could exacerbate imported inflationary pressures.