Monetary Policy Decision

The Monetary Policy Board of the Bank of Korea decided today to leave the Base Rate unchanged at 2.50% for the intermeeting period. With inflation remaining stable, economic growth, while there is still high uncertainty surrounding the economic growth outlook, has continued its improvement trend, mainly driven by consumption and exports. Also, it is necessary to further monitor financial stability conditions, such as the effects of real estate market stabilization measures on housing markets in Seoul and its surrounding areas and on household debt, as well as exchange rate volatility. The Board, therefore, judged that it is appropriate to maintain the current level of the Base Rate.

The currently available information suggests that the global economy is expected to slow modestly in growth and experience a divergence in inflation trajectories across countries as the impact of U.S. tariff increases starts to materialize. In global financial markets, long-term Treasury yields have declined due to an interest rate cut by the U.S. Federal Reserve and renewed trade tensions between the U.S. and China. The U.S. dollar has fluctuated significantly, influenced by concerns about fiscal soundness in major countries. Stock prices have continued to rise strongly, led by AI-related sectors. Looking ahead, the global economy and financial markets will be influenced by developments in trade negotiations between the U.S. and China, by the prospects for product-specific tariffs, and by changes in monetary and fiscal policies in major economies.

In terms of the domestic economy, despite sluggishness in construction investment, growth has continued its improvement trend, supported by a sustained recovery in consumption and by favorable export growth. The increase in the overall number of employed persons has expanded, but some major industries, such as manufacturing, have continued to decline in employment. Going forward, domestic demand is expected to continue its recovery, led by consumption, and exports are likely to remain favorable for some time owing to the strong semiconductor sector, but the impacts of U.S. tariffs on exports are likely to expand gradually. Consequently, the growth rate is generally consistent with the August forecast of 0.9% for this year and of 1.6% for next year. However, it is assessed that both upside and downside uncertainties have increased, stemming from factors such as trade negotiations between Korea and the U.S. and between the U.S. and China, developments in the semiconductor industry, and the pace of recovery in domestic demand.

Inflation remained on a stable path in September, with consumer price inflation and core inflation (excluding changes in food and energy prices from the CPI) recording 2.1% and 2.0%, respectively. Short-term inflation expectations among the general public fell slightly to 2.5% in September from 2.6% the previous month. Looking ahead, despite upward pressure from the exchange rate, inflation is projected to remain at around 2% due to subdued demand-side pressure and the stabilization of global oil prices. As a result, both headline (2.0% and 1.9%) and core inflation (1.9% and 1.9%) are expected to be consistent with the August forecasts for this year and next year, respectively. The future path of inflation is likely to be affected by economic conditions at home and abroad, by movements in exchange rates and in global oil prices, and by the government’s price stabilization measures.

Financial and foreign exchange markets have remained generally stable, but volatility in the exchange rate and the interest rate has increased somewhat since late September. The Korean won to U.S. dollar exchange rate has risen significantly due to uncertainties regarding tariff negotiations with the U.S. and due to renewed trade tensions between the U.S. and China. Korean Treasury bond yields fluctuated within a narrow range and then rose due to heightened vigilance over financial stability. Stock prices have risen sharply on prospects for favorable semiconductor industry conditions and on expectations for regulatory reforms in the capital market. The increase in household loans has significantly lessened, but housing price increases and transaction volumes have accelerated again in Seoul and its surrounding areas.

The Board will continue to conduct monetary policy in order to stabilize consumer price inflation at the target level over the medium-term horizon as it monitors economic growth while paying attention to financial stability. The domestic economy has continued its improvement trend in growth, but uncertainties have increased due to developments in the ongoing trade negotiations and the outlook for the semiconductor industry, while inflation remains on a stable trajectory. Regarding financial stability, it is necessary to assess the effects of the government’s recently announced real estate market stabilization measures and to remain cautious about the impact of heightened exchange rate volatility. Therefore, the Board will maintain its rate cut stance to mitigate downside risks to economic growth and adjust the timing and pace of any further Base Rate cuts while closely monitoring changes in domestic and external policy conditions and examining the resulting impact on inflation and financial stability.

Opening Remarks to the Press Conference (October 23 2025)

Today, the Monetary Policy Board (MPB) of the Bank of Korea decided to leave the Base Rate unchanged at 2.50%. I will first go over economic conditions at home and abroad, and then explain the background to today’s Base Rate decision.

Starting with changes in external conditions, the global economy is expected to slow modestly in growth as the impact of tariff increases starts to materialize. In the United States, despite an expansion in AI-related investment, growth is expected to remain slow compared to last year due to slowing employment and weakening consumption. In the euro area and China, despite economic stimulus measures, including fiscal expansion, growth is likely to be constrained owing to a slowdown in exports.

Regarding inflation in major economies, consumer price inflation in the U.S. is forecast to rise to around 3%, reflecting the impact of elevated tariffs, while inflation in the euro area is expected to remain stable at around 2%, driven by low demand-side pressures.

In global financial markets, long-term Treasury yields have declined due to an interest rate cut by the U.S. Federal Reserve and renewed trade tensions between the U.S. and China. The U.S. dollar has fluctuated significantly, influenced by concerns about fiscal soundness in major countries. Stock prices in major economies have continued to rise strongly, led by AI-related sectors, despite worries over global trade conflicts.

Next, looking at domestic conditions, growth has continued its improvement trend supported by a sustained recovery in consumption and favorable export growth. Although construction investment remained sluggish, private consumption continued to recover on the back of improved economic sentiment and government measures to boost domestic demand. Exports, despite a decline in shipments to the U.S., maintained stronger-than-expected growth owing to the strong semiconductor sector.

Looking ahead, the domestic economy is expected to continue its gradual recovery, and growth for this year and next year is projected to remain broadly in line with the August outlook. However, both upside and downside uncertainties surrounding future growth have increased, including those related to trade negotiations with the U.S., developments in the global semiconductor market, and the pace of recovery in domestic demand. In particular, given that the path of exports and overall economic growth beyond next year may vary depending on trade negotiations, not only between Korea and the U.S. but also between the U.S. and China, we will closely examine the outcomes and potential impacts of these negotiations before providing a specific forecast for the growth rate in November.

Inflation remained on a stable path in September, with consumer price inflation and core inflation (excluding changes in food and energy prices from the CPI) recording 2.1% and 2.0%, respectively. Short-term inflation expectations among the general public fell slightly to 2.5% in September from 2.6% the previous month. Going forward, despite upward pressure from the Korean won to U.S. dollar exchange rate, inflation is projected to remain at around 2% due to subdued demand-side pressure and the stabilization of global oil prices. Consequently, both headline and core inflation for this year and next year are expected to align with previous forecasts.

Financial and foreign exchange markets have remained generally stable, but volatility in the exchange rate and the interest rate has increased somewhat since late September. The Korean won-dollar exchange rate has risen to the low 1,400 won range, influenced by residents’ continued demand for overseas investment funds and concerns over tariff negotiations with the U.S., as well as renewed trade tensions between the U.S. and China. Korean Treasury bond yields fluctuated within a narrow range and then rose due to heightened vigilance over financial stability. Stock prices have risen sharply on prospects for favorable semiconductor industry conditions and on expectations for regulatory reforms in the capital market. 

Looking at the housing market and the household debt situation, household loan growth in the financial sector decreased substantially in September, influenced by the government’s macroprudential policies. However, housing price increases and transaction volumes have accelerated again in Seoul and its surrounding areas since September. As the government has introduced follow-up real estate market stabilization measures in response, it is necessary to closely monitor their impacts.

 Lastly, I will explain the background to the Base Rate decision, which reflects the abovementioned domestic and external conditions. With inflation remaining stable, economic growth, while there is still high uncertainty regarding economic growth outlook, has continued its improvement trend, mainly driven by consumption and exports. Also, it is necessary to further monitor financial stability conditions, such as the effects of real estate market stabilization measures on housing markets in Seoul and its surrounding areas and on household debt, as well as exchange rate volatility. The Board, therefore, judged that it is appropriate to maintain the current level of the Base Rate. One member, Shin Sung Hwan, voted against the decision to leave the Base Rate unchanged, proposing to lower it by 25 basis points.

To explain our decision in more detail, first and foremost, given that the domestic economy continues to improve while both upside and downside risks remain for the future growth path, it is deemed appropriate to determine the timing of any further cuts in the Base Rate after more closely assessing developments in various risk factors. In particular, the outcomes of Korea-U.S. and U.S-China trade negotiations, which are expected to take shape around next week’s APEC meetings, are likely to be the most important factors in gauging the future growth trend. It was also viewed as necessary to closely monitor the result of the U.S. Federal Reserve’s October FOMC meeting as well as the pace and duration of the developments in the semiconductor industry in order to reassess the growth outlook beyond next year. Next, from the perspective of financial stability, the housing market in Seoul and its surrounding areas has shown renewed signs of overheating, prompting the government to announce follow-up real estate market stabilization measures. It is judged that monetary policy should also be managed so as not to stimulate expectations for further increases in housing prices. In addition, as exchange rate volatility has also increased sharply within a short period of time, the Board judged that attention should be paid to its possible impact on financial stability. Lastly, while the increase in the exchange rate could exert upward pressure on inflation, demand-side pressures remain subdued and global oil prices are stable, so the overall stable trend is expected to continue. The Board thus judged that it is appropriate to maintain the current level of the Base Rate and to evaluate the changes in domestic and external policy conditions.

Regarding future monetary policy, the Board considers it is necessary to continue its rate cut stance, in the view of prevailing economic conditions. However, given that risks to the growth outlook have increased in both upside and downside, and financial stability risks have also heightened, the Board will determine the timing and the size of any further cuts in the Base Rate based on incoming economic data.