Bank of Korea Likely to Maintain Interest Rate at 2.50% Amid Housing Market Rebound

Korea Investment & Securities has forecasted that the Bank of Korea's Monetary Policy Committee will unanimously decide to keep the benchmark interest rate at 2.50% during its upcoming meeting in October. This outlook reflects the central bank's cautious stance as it prioritizes financial stability against the backdrop of resurgent housing market trends and the limitations of recent policy measures.

Seoul Housing Market Trends Impact Rate Decisions

Recent developments in Seoul's housing market have significantly influenced the Bank of Korea’s monetary policy outlook. According to Choi Ji-wook, a senior researcher at Korea Investment & Securities, apartment prices in Seoul and its surrounding metropolitan regions are rebounding faster than anticipated. Key areas like Songpa, Mapo, Seongdong, and Gwangjin—collectively referred to as the "Han River Belt"—have experienced marked price increases since mid-September.

Choi noted that apartment price growth exceeding 0.1% effectively rules out the possibility of an interest rate cut. He stated, “The price acceleration in both Seoul and the broader metropolitan area has tempered expectations for a rate reduction. Such upward movements undermine any consideration for loosening monetary policy.”

Limitations of Government Intervention

In an effort to stabilize the housing market, government measures introduced on June 27 have demonstrated limited effectiveness so far. Choi commented on the diminished impact of these policies compared to earlier regulations, emphasizing that any additional interventions would require considerable time before producing tangible market effects. He remarked, “From a financial stability perspective, the measures thus far lack the potency seen in prior attempts to regulate housing prices.”

This inertia in policy effectiveness further reinforces the likelihood of the Bank of Korea adopting a wait-and-see approach. The central bank appears inclined to maintain its current rate policy to mitigate risks arising from ongoing financial and housing market volatility.

Unanimous Vote Expected in October Meeting

Looking forward to the October Monetary Policy Committee meeting, Choi anticipates a unanimous decision to hold the interest rate steady at 2.50%. Dissenting opinions within the committee are unlikely, reflecting widespread alignment on prioritizing stabilization over easing. Moreover, Choi expects a reduction in the number of committee members advocating forward guidance for rate cuts, potentially decreasing from five in August to three to five in the October meeting.

This alignment signals growing caution among policymakers toward rate adjustments. “The rebound in key housing markets and the limited effectiveness of recent measures have alerted monetary authorities to the risks of premature easing,” Choi explained. By emphasizing financial stability, the Bank of Korea underscores its commitment to carefully navigating these evolving dynamics.

Conclusion: Financial Stability Over Policy Easing

The upcoming Monetary Policy Committee meeting will almost certainly reaffirm the Bank of Korea's stance to maintain the benchmark interest rate at 2.50%. This decision reflects the enduring influence of escalating housing prices and the muted efficacy of recent regulatory measures designed to temper market activity. With a focus on financial stability, monetary authorities remain steadfast in balancing growth and risk management amid shifting economic conditions in South Korea.