BOK holds rates steady amid property market heat
The central bank maintained the rate at 2.5 percent, pausing its rate-cut cycle after two reductions earlier this year that lowered the rate by a combined 0.5 percentage point to support the sluggish economy.
The BOK's decision underscores its concern over rising household debt, fueled by an overheated housing market. A sharp increase in household loans could threaten the country's financial stability by raising the risk of non-performing loans.
Driven by increased housing transactions and soaring home prices, outstanding household loans at banks reached 1,161.5 trillion won ($835 billion) as of the end of June — the largest monthly gain in 10 months, according to central bank data released Wednesday.
The widening Korea-US interest rate gap, now at a record 2 percentage points, is another key factor in the central bank's cautious stance. With the US Federal Reserve expected to hold its rate this month, an additional rate cut by the BOK would have widened the differential to 2.25 percentage points, raising concerns over foreign exchange market volatility.
Still, markets expect the BOK may lower the policy rate once or twice later this year if domestic demand remains weak. The US administration's tariff measures also pose a risk to Korea's export-reliant economy.
With the BOK's decision now in place, attention turns to the upcoming Federal Open Market Committee meeting scheduled for July 29–30.
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