South Korea maintains its interest rate at 2.5%, a decision some economists expected

Policymakers at South Korea’s central bank decided to maintain the benchmark interest rate at 2.5% on Thursday. The rate decision comes on the heels of new property restrictions in Seoul aimed at limiting debt growth.

According to South Korean press reports on Oct. 15, the government expanded tougher property rules, including loan restrictions, to all 25 Seoul districts and 12 additional parts of Gyeonggi Province.

Household debt remains a pressing issue for the Bank of Korea, which has avoided cutting interest rates to prevent a rebound in housing demand.

Bank of America recognised that housing inflation is still a major focus in South Korea

Economists polled by Reuters had widely expected the decision. The central bank has maintained a 3.5% rate for 1 year and 7 months before making four quarter-point cuts, two late last year and two earlier this year. It has now held rates steady for the third consecutive meeting, following similar moves in July and August.

So far, analysts view the decision as aimed at cooling housing market sentiment, with Seoul’s property prices still firm even after the government’s June 27 measures restricting home loans to 600 million won, roughly $418,070. 

Speaking before the National Assembly’s Strategy and Finance Committee on the 20th, Bank of Korea Governor Rhee Chang-yong stated, “From the Bank of Korea’s perspective, we aim not to play a role in fueling the real estate market by further increasing liquidity.”

Around the same time, Bank of America analysts noted that Seoul’s housing inflation has remained a key focus for policymakers, acting as a major obstacle to additional rate cuts in the second half of 2025.

The analysts asserted that housing prices in central Seoul rose around mid-September, despite earlier government efforts to rein in the market. Although they argued that the current measures are likely to reduce housing transactions gradually, it is unclear to what extent they can stabilize prices.

South Korea is still finalizing the trade deal details with Washington.

South Korea’s rate announcement also comes at a time of uncertainty in its trade relations with the U.S., as both governments struggle to conclude talks on a July 30 agreement. As part of the accord, South Korea is expected to invest $350 billion in the U.S.. However, President Lee Jae Myung warned in an interview that transferring it all at once could destabilize the economy.

According to reports, negotiators plan to visit Washington this week to finalize details before the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea on October 31.

Kim Yong-beom, Seoul’s chief policy advisor, says talks have “moved beyond most issues,” though a few sticking points still need attention. Kim revealed this after returning from Washington, where he held meetings with U.S. Commerce Secretary Howard Lutnick and senior economic officials.

According to Kim, both sides now anticipate “real progress” before their presidents meet on the sidelines of the summit. The optimism came after months of gridlock. President Donald Trump had earlier said that Washington agreed to cut import tariffs on South Korean goods to 15%, provided that Seoul commits to $350 billion in U.S. investments.

The announcement, made on July 30, marked a significant thaw in relations between the two economies. Still, auto tariffs remain in place as the two sides continue to haggle over how the investment will be structured and implemented.

During its most recent meeting in August, the Bank of Korea revised its 2025 inflation estimate upward to 2% from 1.9%, and its growth projection to 0.9% from 0.8%. The BOK also anticipates a modest upturn in domestic demand, driven by additional fiscal spending and improving household sentiment.

However, the bank warned that exports will probably maintain favorable trends for a while before slowing due to the expanding impact of U.S. tariffs.

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