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Korea's central bank holds key rate steady, raises GDP outlook to 0.9%

Published: 28 Aug. 2025, 11:34

Bank of Korea Governor Rhee Chang-yong strikes the gavel at a monetary policy board meeting held at the central bank’s headquarters in Jung District, central Seoul, in the morning of Aug. 28. [NEWS1]

The Bank of Korea (BOK) held its key interest rate steady at 2.5 percent on Thursday, citing concerns that a premature rate cut could reignite housing prices. It also slightly raised its outlook on Korea’s real gross domestic product (GDP) growth by 0.1 percentage points this year to 0.9 percent.

It’s the second consecutive month that the benchmark interest rate has been kept unchanged, according to the central bank’s monetary policy board meeting held the same day.

The biggest reason behind the hold was concern over rising housing prices in Seoul.

“While household debt has somewhat stabilized since the June 27 mortgage restrictions, housing prices in parts of Seoul are still showing strong upward momentum,” said BOK Gov. Rhee Chang-yong during a National Assembly session on Aug. 19. “We need to monitor whether this stabilizing trend continues.”

Following the government's June 27 measures that capped home-backed loans at 600 million won ($432,000), the housing market entered a wait-and-see mode. According to the Korea Real Estate Board, housing prices in Seoul rose 0.75 percent last month, down from the 0.95 percent increase in the previous month. But sentiment for a rebound appears to be returning.

The BOK’s latest consumer sentiment index for housing price expectations stood at 111 in August, up two points from July. A reading above 100 indicates that more respondents expect prices to rise over the next year.

Given that housing transactions typically take two to three months to complete, the BOK said it will take more time to assess the impact of the new loan restrictions.

Lingering uncertainty over U.S. tariffs also factored into the bank’s cautious stance. While Korea secured a 15-percent most-favored nation tariff rate in recent negotiations with the United States, the tariff status of key export items such as semiconductors and pharmaceuticals remains unclear.

“Tariffs imposed by the EU, China and countries where Korea has production bases like Vietnam, Mexico and Canada will be crucial,” Gov. Rhee said following last month’s policy meeting.

The central bank revised its 2025 GDP growth forecast upward by 0.1 percentage points to 0.9 percent, citing consumer vouchers introduced through the second supplementary budget following the launch of the new administration. The BOK had previously lowered its growth outlook five times since November 2023, from 2.3 percent to 0.8 percent.

The Ministry of Economy and Finance also recently forecast 0.9 percent growth for this year.

The BOK projected next year’s growth at 1.6 percent, with consumer price inflation expected to be 2 percent this year and 1.9 percent next year.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY PARK YU-MI [[email protected]]