South Korea’s central bank is widely expected to keep its benchmark interest rate unchanged at 2.50 per cent on Thursday, as weakness in the local currency and lingering inflation risks constrain the scope for further monetary easing, according to economists surveyed.
The Korean won has fallen nearly 2 per cent in the first two weeks of the year, heightening concerns about imported inflation at a time when price pressures have not fully subsided. The currency’s slide was cited by the Bank of Korea (BOK) at its November policy meeting as a key risk factor, prompting a more cautious stance despite slowing inflation.
Asia’s fourth-largest economy recorded annual inflation of 2.1 per cent in 2025, easing slightly from 2.3 per cent in 2024 but still remaining above the central bank’s 2 per cent target. While inflation is expected to moderate further this year, policymakers remain wary that a weaker won could reverse recent progress by pushing up energy and food prices.
Reflecting this caution, the BOK has softened its forward guidance, shifting from a commitment to “maintain its rate cut stance” to stating that the board would decide “whether and when” to implement further cuts. This change has strengthened expectations that the central bank is nearing the end of its current easing cycle.
“Given the volatility in the FX market, it is too soon for the BOK to cut rates right now,” said Kelvin Lam, senior economist at Pantheon Macroeconomics. He added that elevated housing price expectations, particularly in Seoul, were another source of concern for policymakers focused on financial stability.
Apartment prices in Seoul rose 0.18 per cent in the week ending January 5, according to the Korea Real Estate Board, and surged 8.7 per cent over the course of 2025. The persistent rise underscores the delicate balance facing the BOK as it weighs growth support against risks from asset market overheating.
The Reuters poll showed economists have pushed back expectations for the next rate cut to early next year, with most now forecasting no further changes through 2026. This marks a sharp shift from a November 2025 survey, when over 60 per cent expected at least one cut in the first quarter of this year. In the latest poll, only 22 per cent anticipated a cut this quarter.
South Korea’s economy is forecast to grow 2.0 per cent this year, slightly above the BOK’s own estimate of 1.8 per cent, while inflation is expected to average 1.9 per cent, marginally below the central bank’s projection.
