South Korea keeps rates unchanged as debt risks grow

[SEOUL] South Korea’s central bank held policy interest rates steady for a second straight review on Thursday, amid concerns about financial imbalance risks caused by a rapid buildup of mortgage debt.

The Bank of Korea’s seven-member monetary policy board voted to keep its benchmark interest rate unchanged at 2.5 per cent, an outcome expected by 27 of 35 economists polled by Reuters.

The central bank revised up economic growth for this year to 0.9 per cent from 0.8 per cent previously, but that would still mark the slowest expansion since 2020.

With the US Federal Reserve inching toward a rate cut, analysts expect the BOK to resume easing in the fourth quarter as the sputtering economic recovery reduces concerns about an uptick in inflation.

A total of four rate cuts since last year has fueled concerns over rising household debt, while uncertainty over US tariffs has had an outsized impact on South Korea’s trade-reliant economy and its investment.

Governor Rhee Chang-yong said last week home prices in parts of Seoul are “still rising at a high rate,” signaling the board has reasons to hold policy steady on Thursday.

“We believe the BOK Governor would remain concerned about over-delivery of monetary easing compared to under-delivery of monetary easing during his term till April 2026,” said Kim Jin Wook, a Citi Research analyst based in Seoul, who sees the BOK cutting rates by 25 basis points in October.

Exports increased for a second straight month in July on solid chips and car sales, thanks to front-loading of shipments to avoid any increase in US tariffs.

Rhee has repeatedly said the BOK may not need to cut as much as global peers as it didn’t tighten policy as much during the pandemic.

Investors get an update on his views when he holds a press conference at 0210 GMT. REUTERS