Bank of Korea Holds Steady as Won Weakness Spurs Caution — Update

By Kwanwoo Jun

South Korea's central bank held its base rate steady for a fifth consecutive meeting and removed a reference to potential rate-cuts from its policy statement, as weakness in the local currency limits room for further easing.

The Bank of Korea on Thursday left its benchmark seven-day repurchase rate unchanged at 2.50%, as widely expected. All 29 analysts polled by The Wall Street Journal had forecast no change at the bank's first rate-setting meeting of the year.

BOK Governor Rhee Chang-yong said at a news conference that the decision was unanimous among the seven-member policy board, adding that market expectations for aggressive rate cuts were fading.

The number of board members expecting a rate cut over the next three months fell to one from three at the previous rate-setting meeting in November, while the number of those forecasting no change rose to five from three, he said.

The central bank also removed an earlier reference to "leaving room for potential rate cuts" from its policy statement, signaling a possible end to its easing cycle.

The bank, which has stood pat since the second half of 2025, extended its policy pause as the won got off to a weak start this year. The currency is down around 2% against the dollar so far in 2026, making it one of the worst-performing in Asia.

Strong demand for the dollar--driven in part by Korean retail investors piling into U.S. equities--has weighed on the won. Additional BOK rate cuts could add further downward pressure on the currency.

Lingering financial-stability concerns tied to rising household debt and the property market have also constrained the central bank's ability to lower borrowing costs.

There is little urgency on the economic front. South Korea's economy has been recovering faster than previously expected, while inflation remains largely subdued, reducing the need for additional support.

"The domestic economy has continued on an improving growth trend, with upside risks to the growth path having increased somewhat," the BOK said in its policy statement.

The Ministry of Economy and Finance said last week that it expects the economy to grow 2.0% in 2026, up from its August forecast of 1.8%. That would follow an estimated 1.0% expansion in 2025.

Inflation is expected to average 2.1% this year, compared with an previous estimate of 2.0%, the ministry said in its semiannual outlook.

Views on the BOK's next moves remain divided. Some analysts have scaled back earlier expectations for rate cuts, while others still see scope for further easing.

The central bank could take rate cuts off the table as early as April, Citigroup economist Jin-Wook Kim wrote in a recent note. Monetary policy is shifting toward a prolonged hold, he said, although officials continues to keep the door open to cuts.

Capital Economics senior Asia economist Gareth Leather cautioned that rate cuts could resume in mid-2026 if economic growth slows and local property markets cool.

"For now, however, rates are likely to remain unchanged over the next few meetings," he said.

"Currency pressures have intensified as the won depreciates on renewed speculation and capital flows into U.S. equities," said Jeemin Bang, an associate economist at Moody's Analytics. "Any additional rate cuts at this stage would have prompted the currency to depreciate further, heightening financial instability and adding to inflationary pressures."

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

January 14, 2026 23:43 ET (04:43 GMT)