BOK Poised to Hold at 2.50% as Weak Won and Hot Housing Market Delay Easing, Next Cut Seen in 2026
The Bank of Korea is widely expected to leave its base rate unchanged at 2.50% on November 27, with a clear majority of economists citing currency fragility and an overheated real estate market as key reasons to defer further easing. A Reuters poll of 36 economists showed 32 anticipating a hold, with the timeline for the next rate cut shifting into early 2026.
Cautious Stance Amid Currency and Property Risks
Policy caution has hardened as macro and market conditions diverge. While the growth and inflation prints have steadied, the won’s weakness and persistent housing heat argue against adding liquidity. Strategists say the central bank is unwilling to stoke financial imbalances or amplify FX volatility after delivering 100 basis points of cumulative easing since late 2024.
Mixed Macro Signals Keep Easing on Hold
Recent data have complicated the reaction function. South Korea’s economy expanded 1.2% in the third quarter, and October inflation ran at 2.4%, signaling more resilient demand than earlier feared. That backdrop, coupled with lingering currency pressure, underpins expectations for a prolonged pause. Most economists in the poll said the Bank of Korea will wait for clearer improvement in FX dynamics and real estate conditions before resuming rate cuts.
Policy Path: Gradual Cuts Once Conditions Stabilize
Looking ahead, forecasters still expect the policy rate to drift lower through 2026, albeit more gradually than previously thought. A majority anticipate at least one reduction by end-March 2026, with rates seen settling around 2.25% through next year—an outlook slightly higher than in October’s survey. Economists cite a subdued growth trajectory, a negative output gap, and potential Federal Reserve easing in 2026 as catalysts for renewed BOK accommodation once market stability firms.
What Investors Will Watch
– Forward guidance on FX and housing: Any stronger language on currency weakness or financial stability would signal a higher bar for near-term easing. – Assessment of inflation persistence: Clues on how the BOK views underlying price pressures will guide the path for real rates. – Board split and vote dynamics: A unanimous hold versus dissent could shape market positioning into year-end.
Market Highlights – Policy rate expected to remain at 2.50% on Nov. 27 (32 of 36 economists). – Next rate cut now seen in early 2026 as FX and housing risks dominate. – Q3 growth printed at 1.2%, October inflation at 2.4%. – BOK has delivered 100 bps of easing since late 2024. – Rates projected around 2.25% through 2026, slightly higher than October’s poll.
Questions and Answers
Q: Why is the BOK likely to keep rates unchanged now? A: Policymakers are balancing a still-weak currency and overheating risks in housing against moderate growth and manageable inflation. Easing now could intensify FX volatility and financial imbalances.
Q: When do economists expect the next rate cut? A: The consensus has shifted, with the next cut now expected in early 2026, depending on stabilization in real estate and FX conditions.
Q: What could bring cuts forward? A: A sustained improvement in the won, cooler housing indicators, and softer inflation momentum could lower the threshold for earlier easing.
Q: How does the Fed’s trajectory matter for the BOK? A: Expected Fed easing in 2026 would reduce external rate differentials, easing pressure on the won and giving the BOK more room to cut without jeopardizing currency stability.
This article was prepared for BPayNews readers tracking Asia’s monetary policy and FX volatility.
