The Bank of Korea left its benchmark interest rate unchanged at 2.50% on Thursday, a decision that followed market expectations and reflects the central bank's assessment that current conditions allow time to monitor the outlook for both inflation and growth.
In its accompanying projections, the central bank upgraded its growth forecast for 2026 to 2.0% from a prior estimate of 1.8%. The revision accompanies a broader assessment that the South Korean economy should expand at a faster pace this year than it did last year.
The central bank highlighted a strengthening in the technology sector as a material support for near-term growth. In a release on Monday, it attributed part of the improved outlook to an artificial intelligence-fuelled chip boom led by Samsung Electronics and SK Hynix.
Policymakers also reiterated that the easing cycle initiated in October 2024 remains on pause for an extended period as they navigate external and domestic vulnerabilities. The central bank specifically cited the need to manage currency market volatility and lingering concerns over rising household debt as factors that constrain the scope for quick policy moves.
At the same time, the central bank noted trade-related risks that could temper growth. It warned that unpredictable shifts in U.S. tariff policies pose uncertainty for export performance and could disrupt key industrial sectors, including automobiles and steel.
Context and implications
The decision to maintain the policy rate reflects a balancing act: the central bank is taking a cautious approach by pausing further easing while allowing upside surprises from resilient activity and the chip sector to materialize. The upgraded 2026 forecast signals confidence in a modest pick-up in output, yet officials remain watchful of external shocks and domestic financial vulnerabilities.
The central bank's statements underscore competing pressures on monetary policy: stronger technology-led growth on one hand, and currency volatility together with household leverage on the other.
Key points
- The Bank of Korea kept the benchmark interest rate at 2.50% on Thursday.
- Growth for 2026 was revised up to 2.0% from 1.8%.
- Support for faster growth this year is expected from an AI-driven chip boom led by Samsung Electronics and SK Hynix; trade uncertainty and household debt remain key constraints.
Risks and uncertainties
- Unpredictable changes in U.S. tariff policies could weaken export growth and disrupt sectors such as automobiles and steel.
- Currency market volatility could complicate the central bank's policy stance and influence financial conditions.
- Rising household debt is a domestic vulnerability that limits the central bank's flexibility on easing measures.