BOK signals caution on rate cuts amid won and housing risks

Yonhap News

The Bank of Korea signaled that interest rate cuts will not come easily, citing risks from a weak won, rising housing prices in the Seoul metropolitan area and upward pressure on inflation.

In its 2026 monetary and credit policy guidelines released on Thursday, the central bank said it would decide on the timing and pace of any additional rate cuts after comprehensively assessing inflation trends, growth momentum and financial stability. The tone marks a shift from last year’s emphasis on flexible easing toward a more cautious stance, suggesting the benchmark rate of 2.5 percent could remain in place for an extended period.

A key obstacle to easing is the depreciation of the won, which raises import prices. According to Bloomberg, the median forecast for Korea’s consumer inflation next year among 37 institutions stood at 2.0 percent as of mid-month, up 0.1 percentage point from the end of last month.

To address currency-related risks, the BOK said it would strengthen efforts to improve foreign exchange supply-demand conditions, while continuing institutional reforms to enhance foreign investor access, including the 24-hour FX market and adjustments to offshore won usage rules. The bank plans to extend operating hours for its financial network in April next year and begin work on an offshore won settlement system, targeting a pilot by year-end.

The central bank also pledged selective liquidity support aligned with policy goals, including the launch of a loan-linked support program for small and medium-sized enterprises. To prepare for market stress, it will conduct test repurchase operations with nonbank financial institutions and activate an emergency lending framework using banks’ loan assets as collateral starting in January.