Bank Of Korea Holds Rates Steady, But Hints At October Cut

By Min Joo Kang of Think.ING

Thursday, August 28, 2025 1:45 AM EST

Time, Time Management, Stopwatch, Industry, Economy

Image Source: Pixabay

The BoK seeks clearer evidence of easing in housing prices

The Bank of Korea left rates unchanged, taking a wait-and-see approach as near-term growth improved amid supportive fiscal policy and reduced tariff-related uncertainties. While there has been a moderation in housing prices and household debt, the BoK noted concerns that housing prices still remain elevated.

The majority of board members agreed to continue monitoring trends in the housing market and watch the yield gap with the US while holding rates today. However, one dissenting member argued that household debt growth has stabilised meaningfully and that the likelihood of a Federal Reserve rate cut in September has increased. Thus, he argued that a preemptive rate cut could support further growth. Three-month forward guidance also pivoted toward a more dovish stance, with five out of six members open to a rate cut.

Quarterly macro-outlook

The BoK raised its 2025 GDP growth forecast to 0.9% year on year (from 0.8%), while maintaining the 2026 projection at 1.6%. The inflation outlook for 2025 and 2026 was adjusted upward to 2.0% (from 1.8%) and 1.9% (from 1.8%), respectively.

The BoK expects a recovery in private consumption, but notes that tariffs may negatively affect exports with a delay. Also, construction conditions turned out to be weaker than expected, weighing on overall growth in the second half. This led to a cautious stance on short-term growth. For 2026, the BoK suggests that impact of fiscal policy may turn negative, though the government’s budget plan hasn’t yet been released. However, growth is expected to reach near-potential levels by the end of 2026, amid a continued recovery in private consumption.

BoK revised up its GDP outlook for 2025 only marginally so

Source: CEIC

BoK watch

Inflation below 2% and a cautious growth outlook should support further easing measures. We continue to expect a 25 bp cut in October, followed by another in the third quarter of 2026. The timing of rate cuts in 2026 could move to the first half if the Fed eases faster or financial stability improves more than expected.

More By This Author:

Rates Spark: The Lisa Cook Affair And The Curve
Rates Spark: Eurozone Bond Spreads Face A Jittery Autumn
Rates Spark: The Bottoming Out Of The 2Y Bund

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.

less

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.