South Korea’s central bank held its key interest rate steady at 2.75% on April 17, pausing a rate-cut cycle that resumed in February, as heightened currency market volatility and a pickup in home prices weighed on the policy outlook.
The Bank of Korea’s (BOK) Monetary Policy Board voted to keep the benchmark rate unchanged at its April meeting, after delivering consecutive cuts in late 2024 and lowering the rate to 2.75% in February. The central bank had earlier raised rates from 0.5% to 3.5% between August 2021 and January 2023 before holding them steady for nearly 17 months.
“The Board judged it appropriate to maintain the current rate level while closely monitoring changes in internal and external conditions,” the BOK said in a statement. It added that future policy decisions would aim to stabilize inflation around target levels while safeguarding financial stability.
Markets widely expected a hold. A survey by the Korea Financial Investment Association conducted between April 4-9 showed 88% of 100 bond market participants anticipated no change, up sharply from 45% in February.
Currency swings driven by U.S. trade policy were a key concern. The won-dollar exchange rate surged to 1,487.60 on April 9 after the United States imposed reciprocal tariffs but quickly retreated to 1,446.0 after Washington announced a 90-day grace period. The won has since firmed to the 1,410 range as U.S.-China tariff tensions escalated and the dollar weakened.
Rising home prices and household debt also factored into the BOK’s cautious stance. The lifting and reinstatement of land transaction permit zones — a government tool to curb speculative property buying — has fueled fresh price increases. According to the Korea Real Estate Board, home prices in Seoul rose 0.52% in March from a month earlier, the biggest gain since September 2024.
A more cautious U.S. Federal Reserve stance further supported the BOK’s decision to stand pat. Fed Chair Jerome Powell signaled no immediate rate cut in remarks to the Economic Club of Chicago on April 16, citing uncertainty around the economic impact of new U.S. tariffs. “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
Even so, pressure for rate cuts may build as political uncertainty resurfaces ahead of a snap presidential election, reviving concerns over consumer sentiment. Data submitted to parliament showed South Korea’s political uncertainty index stood at 2.5 as of April 13, well above levels seen before last year’s declaration of martial law.
Deteriorating economic growth prospects are another factor. Global investment banks have slashed their 2025 GDP forecasts for South Korea in the wake of escalating U.S. tariff actions. Morgan Stanley cut its outlook to 1.0% from 1.5%, while JPMorgan predicted just 0.7% growth. Capital Economics and Citi both forecast 0.9%. Should growth falter further, analysts expect the BOK to resume rate cuts to shore up the economy.
