Home > Business > Economy

BOK signals an end to rate cut cycle as won shows sustained weakness

Published: 15 Jan. 2026, 17:37

JIN MIN-JI
[email protected]

Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held at the bank in central Seoul on Jan. 15, following the day’s Monetary Policy Board meeting. The board kept the policy rate steady at 2.50 percent, in line with market expectations. [BANK OF KOREA]

The Bank of Korea (BOK) signaled an end to the rate-cut cycle on Thursday amid concerns over a persistently weak won and escalating housing prices as it kept the benchmark rate steady at 2.50 percent.

It was a unanimous decision that was largely affected by the sustained depreciation of won, which has been Asia’s weakest performing currency this year, raising inflation risks.

“It is an undeniable fact that the foreign exchange rate was an important factor in the decision,” said BOK Gov. Rhee Chang-yong in a press conference following the Monetary Policy Board meeting held at the bank in central Seoul. “Maintaining the current stance was considered appropriate as financial stability risks, including housing prices and exchange rates, remain elevated.”

Rhee explained that the current foreign exchange rate is difficult to explain based on the country's economic fundamentals.

“About three quarters of the won's rise back to the 1,470 per dollar level, even after the foreign exchange authorities' market-stabilization measures, was due to factors such as [the] strong dollar, weakening yen and geopolitical issues involving Iran and Venezuela,” he said.

“The remaining one-quarter [of the movement in the foreign exchange rate] is due to domestic factors,” he added, citing imbalances in the supply and demand for dollars. “Fundamentals, growth and interest rates all have an impact, but they are not the primary forces driving the exchange rate,” Rhee said, noting that domestic investors’ overseas investments are instead playing a greater role in shaping dollar supply and demand.

Thursday's statement on the direction of monetary policy made no reference to a future rate cut, unlike in October 2025, when it had indicated that the timing and pace of any such cuts would be determined based on economic conditions.

In the forward guidance, five monetary policy board members said they expect rates to remain unchanged over the next three months, while only one member projected a possible rate cut — down from three in the previous guidance.

“The five members who saw a high likelihood of a rate hold noted that, given the strong probability that current economic conditions will persist over the next three months, it is necessary to maintain the policy rate for the time being and assess the state of financial stability,” Rhee said.

“The remaining member who suggested the possibility of a rate cut noted that the recovery in domestic demand is still weak, but added it would be preferable to decide on the future policy direction after observing how financial stability variables, such as housing prices and the exchange rate, evolve,” Rhee added.

Despite the growing toll of the weak won on the economy, Rhee stressed that the foreign exchange rate is not the main factor it takes into consideration when setting rates.

“The BOK doesn’t set interest rate policy on the exchange rate but instead considers the impact of the exchange rate on inflation.” Rhee added, “To control the exchange rate with interest rates, we would have to raise them by around 2 to 3 percentage points, which could cause lots of people to suffer.”

While weak won will likely trigger inflation, analysts say rate increase is unlikely at this point.

“Domestic demand has improved, but it’s hard to say that the domestic economy has fully picked up,” said Kim Sung-soo, a fixed income analyst at Hanwha Investment & Securities, who projects the rate to stay unchanged throughout the year. “As the upward pressure from the exchange rate could offset subdued domestic demand, a rate hike is unlikely at this point.”

Meanwhile, housing prices in Seoul have continued to rise, marking 49 consecutive weeks of gains as of the first week of January, despite a series of government measures aimed at curbing home purchases.

The BOK’s pause on Thursday continued the monetary policy stance established in July last year, following four rate cuts since October 2024.

BY JIN MIN-JI [[email protected]]