Bank of Korea Keeps Base Rate at 2.5% Again, Citing Housing Prices and Exchange Rates

Decision Aligns with Government's Real Estate Curb Measures; 1,430 Won Exchange Rate Also a Concern

Third Consecutive Freeze; Experts Say Rate Cut Unlikely in November if Real Estate and Exchange Rate Instability Continues

Bank of Korea Governor Lee Chang-yong Bangs the Gavel at the Monetary Policy Committee Meeting (Seoul=Yonhap News) Lee Chang-yong, Governor of the Bank of Korea, bangs the gavel at the Monetary Policy Committee meeting held at the Bank of Korea headquarters in Jung-gu, Seoul on October 23, 2025. 2025.10.23 [Photo Joint Press Corps] photo@yna.co.kr

The Bank of Korea's Monetary Policy Committee decided on October 23rd to maintain the base interest rate at 2.50%.

This decision is interpreted as the committee's judgment that there is no reason to lower interest rates prematurely and fuel the "all-in" housing purchase trend and further inflate housing prices, especially with ongoing concerns about rising Seoul housing prices despite the government's June 27 and September 7 measures, leading to the October 15 measures. The risk of the won-dollar exchange rate, which has recently hovered around the 1,430 won mark, further increasing was also considered.

[Graphic] Trends in the Composite Housing Sales Price Index for the Seoul Metropolitan Area (Seoul, Gyeonggi Province) (Seoul=Yonhap News) Reporter Won Hyung-min = According to the nationwide housing price trend survey for September released by the Korea Real Estate Board on the 15th, the composite housing (including apartments, villas, and detached houses) sales price index in Seoul increased by 0.58% compared to the previous month (August).

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Previously, the Monetary Policy Committee shifted its monetary policy towards easing in October of last year by lowering the base rate by 0.25 percentage points, and in November, it implemented consecutive rate cuts for the first time since the financial crisis, defying market expectations.

The easing stance continued in the first half of this year with two rate cuts in February and May during the four meetings. This was a result of focusing monetary policy on economic stimulus as the economic growth rate for this year was expected to be in the 0% range due to sluggish domestic demand in construction and consumption, as well as the impact of U.S. tariffs.

However, the decision to maintain the interest rate for three consecutive times in the second half of the year, including July and August, and now, is primarily due to the highly unstable real estate market.

Despite the June 27 measures, which included a uniform reduction of housing loans in the Seoul metropolitan area to a maximum of 600 million won, apartment prices in Seoul rose by 0.54% in the second week of October (according to Korea Real Estate Board statistics as of October 13th) compared to two weeks prior (before the holiday), with the rate of increase actually widening.

In response, the government hastily announced the October 15 measures, designating all of Seoul and key areas of the Seoul metropolitan region as zones for land transaction permits, and further reducing the loan limits for homes exceeding 1.5 billion won to 200-400 million won.

Just one week after the implementation of stronger real estate regulations, a conflict of policy is inevitable if the Bank of Korea lowers interest rates and encourages housing loans.

Bank of Korea Governor Lee Chang-yong clearly stated during his attendance at the National Assembly's Planning and Finance Committee's audit on the 20th, "From the Bank of Korea's perspective, we do not intend to play a role in fueling the real estate market by increasing liquidity."

[Graphic] Apartment Price Change Rates in Major Regulated Areas of Seoul (Seoul=Yonhap News) Reporter Won Hyung-min = It was found that out of the 21 districts in Seoul that were redesignated as regulated areas through the government's October 15 housing market stabilization measures, apartment prices have fallen in 8 districts.

According to a time-series analysis of nationwide housing price trend survey days by Korea Real Estate Board, a government-sanctioned real estate price survey agency, apartment prices in Dobong-gu, Seoul, have fallen by 5.33% over the past two years and nine months compared to December 2022.

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The recent unstable exchange rate trend, including uncertainties in U.S. tariff negotiations, also served as a major reason for the interest rate freeze.

On the 14th, the closing price of the won-dollar exchange rate during the weekly (daytime) trading session in the Seoul foreign exchange market (as of 3:30 PM) was 1,431.0 won, marking the first time since April 29th (1,437.3 won) that the weekly closing price returned to the 1,430 won range. Since then, it has not shown a clear decline and has been fluctuating between the 1,420 and 1,430 won range.

If the base interest rate were to be lowered further from this point, there is a risk that the won's value would depreciate further, solidifying the exchange rate at or above 1,430 won.

[Graphic] Won-Dollar Exchange Rate Trends (Seoul=Yonhap News) Reporter Won Hyung-min = On the 13th, the weekly closing price of the won-dollar exchange rate against the dollar in the Seoul foreign exchange market (as of 3:30 PM) was 1,425.8 won, an increase of 4.8 won from the previous trading day.

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Furthermore, factors such as a recovery in consumer sentiment due to robust exports of semiconductors and rising asset prices like stocks, as well as the outlook for economic growth recovery next year, have reduced the pressure for interest rate cuts aimed at economic stimulus, which also influenced the Monetary Policy Committee members' decision to freeze rates.

Among experts, the prevailing analysis is that if the instability in housing prices and the exchange rate does not subside, it will be difficult for the Bank of Korea to lower the base interest rate next month.

Cho Young-moo, head of NH Financial Research Institute, assessed, "It would be good if the housing market shows changes due to the measures, but if the current sentiment continues into November and concerns related to real estate and the exchange rate continue to grow, the possibility of a rate cut in November will inevitably diminish significantly." Yonhap News