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BOK holds benchmark interest rate at 2.5% on weakening won, rising home prices

Published: 15 Jan. 2026, 11:34

Bank of Korea Governor Rhee Chang-yong strikes the gavel during a Monetary Policy Board meeting at the central bank’s headquarters in central Seoul on Jan. 15. [NEWS1]

The Bank of Korea (BOK) kept its benchmark interest rate unchanged at 2.5 percent on Thursday, citing continued pressure from the weakening won and rising home prices in Seoul.

The BOK’s Monetary Policy Board held a rate-setting meeting and kept the benchmark rate unchanged for a fifth straight time, following holds in July, August, October and November last year.

In contrast, the U.S. Federal Reserve has cut rates three times since October last year, bringing its target range to 3.5 to 3.75 percent. The interest rate gap between Korea and the United States now stands at 1.25 percentage points, based on the upper end of the Fed’s range.

The decision aligned with market expectations. In a recent survey by the Korea Financial Investment Association, 96 percent of 100 bond market experts predicted the BOK would hold the rate unchanged.

Analysts say the BOK is constrained by simultaneous risks in the foreign exchange and housing markets. A rate cut could accelerate the depreciation of the won and further inflate real estate prices.

Apartments in Seoul are seen on Dec. 23, 2025. [YONHAP]

Volatility in the currency market played a key role in the board’s decision.

“Both upside and downside risks exist for this year’s growth path, and inflation trends could shift depending on exchange rate movements,” BOK Gov. Rhee Chang-yong said on Jan. 2. “We will manage monetary policy by weighing a range of indicators."

The weakening won has pushed up import prices, while rising service-sector prices and volatile agricultural costs have added to broader inflationary pressures. Import prices rose from July through December 2025, according to the BOK.

The won briefly recovered on Thursday after nearing 1,480 won per dollar earlier this month. It closed at 1,464 won in overnight trading, following remarks by U.S. Treasury Secretary Scott Bessent.

After meeting with Finance Minister Koo Yun-cheol in Washington, Bessent wrote on X on Wednesday that he met with Koo to "discuss the critical minerals ministerial meeting and ongoing market developments in Korea, including the recent depreciation of the Korean won which is not in line with Korea’s strong economic fundamentals."

The post was seen as a verbal intervention in the currency market.

Real estate remains another concern. Apartment prices in Seoul rose for the 49th consecutive week in the first week of January, according to KB Real Estate Trust. With price increases spreading across the greater Seoul area, analysts say any rate cut could further overheat the property market.

Economists widely expect the BOK to maintain its cautious stance through the first half of the year, citing ongoing instability in the exchange rate, housing market and inflation. It also points out that the current pace of economic growth does not yet warrant a shift toward rate cuts.

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 KIM WON [[email protected]]