SEOUL: South Korea’s central bank kept its benchmark interest rate unchanged at 2.50% on Thursday, maintaining the Base Rate as policymakers balanced a steady inflation backdrop with improving economic momentum and ongoing financial stability concerns. The Bank of Korea’s Monetary Policy Board said it would hold the current level while assessing developments in domestic and external policy environments, including shifting global market conditions and exchange-rate volatility.
In its latest assessment, the central bank said inflation was expected to remain stable near its target level and that economic growth was projected to continue improving at a stronger-than-expected pace. Consumer price inflation eased to 2.0% in January, while core inflation, which excludes food and energy, remained at 2.0%. The bank raised its 2026 growth forecast to 2.0% from 1.8% previously, citing solid exports led by the IT sector, including semiconductors and computers, alongside a recovery in private consumption.
The policy board reiterated that risks to financial stability remained, highlighting the need for caution over housing prices in Seoul and surrounding areas, household debt levels, and the impact of exchange-rate swings. The bank said risk-off sentiment in global markets had strengthened somewhat and pointed to uncertainty surrounding U.S. tariff policies as a factor in the external environment. All seven Monetary Policy Board members unanimously supported the decision to keep the Base Rate unchanged.
Forward guidance update
Alongside the rate decision, the Bank of Korea introduced a new forward guidance format modeled on a “dot plot” style display of individual policymakers’ rate projections. The framework compiles anonymous submissions from the seven-member board, with each member providing three projections over a six-month horizon to create 21 points. In its first release, 16 of the 21 projections were placed at 2.50%, while four were at 2.25% and one was at 2.75%, reflecting a range of individual outlooks for the policy rate level six months ahead.
The central bank said the new guidance will be published quarterly following policy meetings in February, May, August and November, coinciding with the release of its economic forecasts. The move expands earlier communication that provided a shorter-horizon outlook and aims to present board members’ assessments in a standardized format. The bank also said that any dissenting opinions will be disclosed alongside the published projections rather than separately after press briefings.
Markets and inflation path
After the decision, the Korean won strengthened and policy-sensitive government bond yields eased, as investors weighed the unchanged rate and the details of the newly disclosed rate projections. Korean equities extended gains, with the benchmark KOSPI index rising above the 6,000 level. The central bank noted that volatility in financial and foreign exchange markets had increased recently, with the won’s moves influenced by overseas investment flows, foreign investors’ stock sales, and fluctuations in regional currencies such as the Japanese yen.
The Bank of Korea also revised its 2026 inflation forecasts higher, projecting consumer price inflation of 2.2% and core inflation of 2.1% for the year, up from its earlier projections of 2.1% and 2.0%, respectively. The bank cited upward cost pressures on some items, including electronic devices, and said inflation’s future path would be affected by global oil prices, the exchange rate, economic conditions at home and abroad, and government price stabilization measures. The bank said it would continue conducting monetary policy to stabilize inflation at the target level over the medium-term horizon while closely monitoring growth and financial stability developments. – By Content Syndication Services.