Bank of Korea holds policy rate at 3%

The Bank of Korea kept its benchmark seven-day repurchase rate unchanged at 3.00% on Thursday, pausing after back-to-back quarter-point hikes in July and August. The decision was taken in a unanimous vote by the seven-member monetary policy board and was widely anticipated by economists ahead of the meeting.

This pause comes after the first consecutive rate increases in more than three years, with policymakers choosing to take stock of the impact of earlier moves. Surveys of analysts had overwhelmingly predicted no change in the policy rate at this meeting.

Despite the pause, strong chip-driven growth and inflation above target leave the door open to further monetary tightening. Consumer price inflation stood at 2.9% in September and has remained at or above the Bank of Korea’s 2% target for 13 consecutive months, reflecting both cost-push and demand-pull pressures.

In earlier remarks, Governor Shin Hyun Song stated that monetary policy would remain restrictive until there is confidence that inflation is moving back toward target. Market expectations captured in forecasts point to a potential increase in the base rate to 3.25% at the November policy meeting, consistent with the central bank’s dot plot projection.

Housing dynamics are an important backdrop to the latest decision. Housing-related loans continued to increase, and the pace of housing price gains in Seoul and surrounding areas has accelerated again. This comes as President Lee Jae Myung has called for an "all out effort" to boost housing supply.

The central bank noted these developments while maintaining its restrictive stance, balancing support for financial stability with the need to keep inflation in check. Elevated housing activity and credit growth add to the case for keeping policy relatively tight even during a pause in rate hikes.

Analysts generally interpreted the unchanged rate as a temporary pause rather than a shift toward easing, given firm economic growth and persistent inflation pressures. Some see scope for at least one more rate hike if current trends in prices and activity continue.

With recent volatility in domestic financial markets, particularly equities, the Bank of Korea’s decision also reflects a desire to gauge the lagged effects of previous tightening steps. The coming data on inflation, growth and the housing market will be important in shaping the policy stance at the November meeting and beyond.