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BOK keeps key interest rate unchanged amid concerns over household debt

Published: 10 Jul. 2025, 11:08

A monetary policy board meeting is held at the Bank of Korea’s headquarters in Jung District, central Seoul, on July 10. [BANK OF KOREA]

The Bank of Korea (BOK) on Thursday kept its key interest rate unchanged at 2.5 percent, citing growing concerns over household debt amid a heating real estate market and a widening rate gap with the United States.

The decision was made during a monetary policy board meeting held at the central bank’s headquarters in Jung District, central Seoul. It marks the third rate freeze this year, following earlier holds in January and April, after the central bank slashed rates four times between last October and May for a cumulative cut of 1 percentage point.

The interest rate gap with the United States remains at a maximum of 2 percentage points, as the Federal Reserve maintains its target rate between 4.25 and 4.5 percent.

The freeze was widely expected by the market. In a survey conducted Wednesday by the Korea Financial Investment Association, 93 out of 100 bond experts forecast the central bank would keep rates steady.

The association noted, “Despite delayed economic recovery, growing uncertainty both domestically and abroad — including instability in the housing market — led to a higher expectation of a rate hold compared to previous surveys.”

Household loans in the financial sector rose by 6.5 trillion won ($4.73 billion) in June, the sharpest monthly increase in eight months, fueled by surging home prices particularly in the greater Seoul area.

“Home prices in the Seoul metropolitan area have been rising very rapidly recently, and this is raising financial stability concerns,” BOK Gov. Rhee Chang-yong said at a European Central Bank forum, acknowledged the risks. “We are closely watching these risks in determining the timing and pace of any further rate cuts.”

The rate gap between Korea and the United States also poses a challenge. A further rate cut by the BOK could widen the differential, prompting capital outflows and volatility in foreign exchange markets.

Still, inflation — the BOK’s top priority in monetary policy — is seen as stable, with the consumer price index hovering around 2 percent.

“With concerns about household debt and rising housing prices, coupled with expectations that the United States will delay rate cuts, it’s difficult for Korea to move first,” said Cho Young-moo, head of the NH Finance Research Institute. “We anticipate one rate cut this year, with the fourth quarter being the most likely window.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY PARK YU-MI [[email protected]]