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BOK hints at end to rate-cut cycle amid weak won, inflationary pressure

Published: 27 Nov. 2025, 17:53 Updated: 28 Nov. 2025, 11:09

JIN MIN-JI
[email protected]

Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held after the Monetary Policy Board decided to hold the rate steady at 2.5 percent on Nov. 27. [BANK OF KOREA]

The Bank of Korea (BOK) kept the base interest rate unchanged at 2.5 percent on Thursday as it signaled an end to the rate-cut cycle amid a depreciating won and inflationary concerns.

“Three of the six members [excluding the central banker] said they are highly likely to keep the rate unchanged at an annual 2.5 percent over the next three months,” said the BOK Gov. Rhee Chang-yong during a press conference held after the Monetary Policy Board meeting. “The remaining three members were open to a further rate cut.”

In the last board meeting in October, four members were open to an additional rate cut.

The BOK kept the interest rate unchanged for the fourth consecutive meeting. Only one board member, Shin Sung-hwan, voted for a rate cut to 2.25 percent, maintaining his stance from October.

“The three members that expressed a high chance of a rate freeze cited volatility in the foreign exchange market and growing inflationary concerns,” Rhee said. “The remaining three members who suggested a potential rate cut said that they should be open to lowering the rate for some time, considering there are both upside and downside risks to growth and uncertainty with the U.S. monetary policy.”

Rhee added that the one-sided movement in the foreign exchange rate, driven by increasing investor bets on foreign equities, has reached a concerning level.

“Rather than the foreign exchange rate volatility, the excessive one-sided movement is concerning,” Rhee said, but added that a weak won doesn’t immediately lead to the kind of market instability seen in the past when Korea had a lot of foreign debt.

The won weakened over the past weeks, hitting 1,479.4 to the dollar on Monday. To tame the currency, the foreign exchange authorities verbally intervened earlier this month. They also formed a consultative body with the National Pension Service — the world’s third-largest pension fund — as its overseas stocks and bonds are large enough to affect the foreign exchange market.

interest rate

The BOK revised up Korea’s growth and inflation forecasts, citing the strong performance of the chip sector and a recovery in domestic consumption.

The semiconductor cycle fueled by artificial intelligence demand is expected to extend into next year, the bank said, though it remained uncertain about lasting through 2027.

The central bank's growth forecast also shifted upward for this year from August’s 0.9 percent to 1 percent. Next year’s estimation was also raised from the previous 1.6 percent to 1.8 percent.

“Exports and growth in facility investment are expected to surpass the initial expectation on the back of the finalized Korea-U.S. trade agreement and a strong global semiconductor industry,” Rhee said. “On the consumption side, the growing impact of expansionary fiscal policy and improving economic sentiment is expected to accelerate the recovery.”

The bank also raised its inflation forecast from 2 percent to 2.1 percent for this year, and from 1.9 percent to 2.1 percent in 2026. It cited the weak won, aggravating weather conditions and recovery in domestic demand as the primary reasons for the upticks.

Meanwhile, the U.S. Federal Reserve's Federal Open Market Committee is scheduled to announce its rate decision on Dec. 10. Markets are increasingly betting on a rate cut after the Fed made two consecutive slashes to bring them down to a range between 3.75 percent and 4 percent last month due to softening job market conditions.

BY JIN MIN-JI [[email protected]]