The headquarters of the Bank of Korea in Jung District, Seoul. (Image courtesy of Yonhap)
SEOUL, Jan. 15 (Korea Bizwire) — South Korea’s central bank kept its benchmark interest rate unchanged Thursday, signaling caution as a weakening currency and persistent inflation risks narrowed the scope for further monetary easing.
The Monetary Policy Board of the Bank of Korea voted unanimously to hold the policy rate at 2.5 percent, extending a pause that has now lasted five meetings since July. The decision was widely expected as policymakers balance a fragile recovery against renewed volatility in the foreign-exchange market.
In a statement, the central bank said inflation is likely to ease gradually but warned that the elevated exchange rate remains an upside risk. It also cited lingering concerns over financial stability, including rising home prices in Seoul and its surrounding areas, household debt levels and heightened currency swings.
Governor Rhee Chang-yong said one board member favored keeping open the option of a rate cut within the next three months, though the bank removed any explicit reference to near-term easing from its policy guidance for the first time since it began cutting rates in October 2024.
Beyond that horizon, Mr. Rhee said, uncertainty is too high to make firm commitments, pointing to sensitivity of inflation to the exchange rate and uncertainty surrounding U.S. monetary policy.
This photo taken Dec. 23, 2025, shows a currency exchange booth at Incheon International Airport, west of Seoul. (Yonhap)
The decision comes as the won has come under renewed pressure. After briefly stabilizing near 1,420 to the dollar late last year following government intervention, the currency slid again and recently touched the mid-1,480s—its weakest level in more than 16 years—before recovering modestly.
A further rate cut, analysts say, could risk accelerating capital outflows and deepen the currency’s decline.
“The won is markedly undervalued relative to the country’s economic fundamentals,” Mr. Rhee said, adding that most of the weakness reflects a strong dollar, a weak yen and geopolitical risks, with domestic factors playing a smaller role.
While South Korea’s large stock of external assets reduces the risk of a currency-led financial crisis, he said, exchange-rate moves still affect inflation and impose strains on households and importers.
Consumer prices rose 2.3 percent in December from a year earlier, remaining above the central bank’s 2 percent target for a fourth straight month. Import prices also climbed for a sixth consecutive month, despite falling global oil prices.
Policymakers are also assessing the impact of tighter government measures to cool the housing market, including stricter lending caps and curbs on home purchases in Seoul. Those steps have slowed price gains and loan growth, but recent data show apartment prices in the capital continuing to edge higher.
The central bank forecasts economic growth of 1.8 percent this year, up from about 1 percent last year, supported by solid exports and a gradual recovery in private consumption—an outlook that allows officials, for now, to prioritize currency stability over additional rate cuts.
M. H. Lee (mhlee@koreabizwire.com)
