At its November policy meeting, the Bank of Korea (BOK) decided to keep its benchmark interest rate unchanged at 2.50%, in line with broad market expectations. This marks the second consecutive pause in the rate-cut cycle, even as the Korean economy continues to need support for a more sustainable recovery.
But why is the BOK so “cautious” at this juncture?

The answer lies in two major risks currently confronting South Korea’s economy: a weakening won and a renewed surge in Seoul’s housing prices.

Won depreciation becomes the biggest obstacle to further rate cuts

In recent months, the Korean won has fallen nearly 4%, making it one of Asia’s worst-performing currencies second only to the Japanese yen. Several key drivers are behind this decline:

• Korean retail investors and pension funds ramping up purchases of U.S. tech stocks, leading to stronger demand for USD.

• Expectations that the Federal Reserve will delay rate cuts, keeping the dollar firm.

• Concerns over global economic slowdown, particularly in trade and manufacturing.

According to Bloomberg, Korea’s National Pension Service (NPS) has increased allocations to overseas assets, intensifying USD demand and exerting more downward pressure on the won.

Under these conditions, further rate cuts by the BOK would widen the interest-rate gap between USD and KRW, potentially causing:

• Higher import costs → renewed inflation pressures

• Capital outflows from Korean financial markets

• Increased volatility in the USD–KRW exchange rate

Although the Korean government has held meetings with NPS, major exporters, and brokerage firms to discuss stabilizing the USD–KRW market, no concrete measures have yet been announced. This signals just how sensitive and fragile the currency environment is at the moment, and why the BOK must proceed cautiously.

Seoul housing prices jump again doubling the pressure on the BOK

Alongside exchange-rate risks, the BOK is also contending with a persistent and politically sensitive issue: housing prices in Seoul are rising again.

In the week ending November 17, apartment prices in Seoul increased by 0.2%, a notable jump at a time when many expected the market to cool. This rise has occurred despite a range of government interventions.

Reports from Yonhap and Bloomberg highlight that:

• Speculative sentiment remains strong, especially in central districts.

• Housing supply remains tight, while demand is rebounding.

• Rate cuts since last year have heated up the property market faster than projected.

President Lee Jae-myung has explicitly supported the decision to pause rate cuts, emphasizing that managing exchange-rate stability and cooling housing prices must be top priorities right now.

With home prices already rising, additional rate cuts would likely fuel more demand, widening affordability gaps and raising the risk of asset bubbles. This is precisely the scenario the BOK aims to avoid.

“Cautious does not mean passive”: the BOK’s stance

In October, four of the six members of the Monetary Policy Board said they were open to cutting rates within the next three months, down from five members in the previous meeting. This signals that support for easing is still present, but the momentum has slowed due to current macro-financial risks.

At the latest meeting, the BOK also revised its forecasts upward:

• 2025 GDP growth: from 0.9% → 1.0%

• 2025 inflation: from 2.0% → 2.1%

• 2026 projections: GDP +1.8%, inflation +2.1%

These adjustments reflect the BOK’s belief that economic recovery is progressing but remains fragile and vulnerable to external shocks.

When might the BOK resume rate cuts?

Analysts at Shinyoung Securities, HSBC, and Nomura broadly agree that:

• The next rate cut will likely be pushed to Q1 2026, instead of late 2025.

• Any rate-cut decision will depend heavily on:

  • Stabilization of the won

  • Cooling of Seoul’s housing market

  • The Fed’s policy direction in the next two meetings

  • Capital-flow trends and financial-market volatility

Cho Yong-gu, an economist at Shinyoung Securities, noted:
“The BOK will not want to go against the government’s emphasis on stabilizing the exchange rate and curbing housing prices.”

This suggests that South Korea may end up being one of the last major Asian economies to fully resume monetary easing, following Japan which has yet to escape ultra-low interest rates.

South Korea faces a delicate monetary-policy balancing act

For years, South Korea has navigated a “three-way dilemma”:

1. Supporting economic growth

2. Controlling inflation

3. Ensuring financial and housing-market stability

Today, all three variables are working against rapid rate cuts:

• A weaker won → limits monetary easing

• Rising home prices → discourages rate cuts

• A still-hawkish Fed → keeps pressure on KRW and capital flows

This leaves the BOK with little choice but to maintain a cautious and stability-focused monetary approach.

Looking ahead, markets will be watching two critical factors:

• The government’s upcoming measures to stabilize the USD–KRW exchange rate

• Governor Rhee Chang-yong’s press conference, particularly his comments on the likelihood of a rate cut in early 2026