The Bank of Korea left its main policy rate on hold at 2.50 percent at its policy meeting held today, in line with the consensus forecast. This rate has been cut by a cumulative 100 basis points since last October.

In the statement accompanying today's decision, officials noted headline and underlying inflation picked up in October and advised that they had revised up their 2026 underlying inflation forecast slightly higher from 1.9 percent to 2.0 percent. Officials also revised up their 2026 GDP growth forecast from 1.6 percent to 1.8 percent.

Although officials advised that they are"leaving room for potential rate cuts", they remain cautious about house price growth in the Seoul area and higher household debt. Reflecting these considerations, they stressed that any further rate cuts will be based on incoming data.

Forecasters uniformly expect the bank to keep rates steady in the face of a strong won and as it worries about financial stability.

South Korea’s central bank, the Bank of Korea (BoK), announces its monetary policy with regard to interest rates eight times a year. The announcement conveys to the financial markets and investors what, if any, changes in policy might be. The main focus is the target set for the base rate. Policy is framed around keeping the annual rate of inflation as measured by the consumer price index (CPI) at 2 percent over the medium-term.

The Bank of Korea determines interest rate policy at eight meetings during the year. A post-meeting statement is issued after each meeting. The Bank also publishes its Monetary Policy report four times a year and updates economic forecasts twice a year.

Monetary policy goals are to aid and abet solid economic growth along with rising living standards. To achieve these goals, inflation is kept low, stable, and predictable. The Bank has an inflation target at 2 percent over the medium-term. The inflation control target is set by the Bank of Korea in consultation with the government and is reviewed every two years.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.