The central bank said Thursday it will decide whether and when to implement further interest rate cuts next year by taking into account inflation, economic growth and financial stability conditions.
“We will determine whether and when to make additional rate cuts based on a comprehensive assessment of incoming data, including developments in inflation and growth, uncertainties surrounding the growth and inflation outlook, and risks to financial stability,” the Bank of Korea (BOK) said in its monetary and credit policy operating guidelines for next year.
At its latest rate-setting meeting last month, the BOK kept its key interest rate steady at 2.5 percent for the fourth consecutive meeting, despite being in a monetary easing cycle since October last year.
The BOK has lowered the key rate by a cumulative 100 basis points from 3.5 percent in an effort to support economic growth.
“Inflation is expected to remain anchored around the target level, but upward pressures could turn out to be stronger than anticipated, reflecting the elevated exchange rate and a recovery in domestic demand,” the BOK said.
“While growth is projected to rise toward its potential rate, the outlook is subject to various risks related to the global trade environment, the semiconductor cycle and the pace of recovery in domestic demand,” it added.
The BOK expects the South Korean economy to expand 1.8 percent in 2026, accelerating from this year’s projected 1 percent growth.
From a financial stability perspective, the bank called for “continued vigilance” over housing prices in Seoul and surrounding areas, household debt and the impact of heightened exchange-rate volatility.
In response to volatility in the local currency, and heightened uncertainties at home and abroad, the BOK pledged to “strengthen market monitoring and actively implement market stabilization measures to address excessive herd behavior.”
It also vowed to step up efforts to address structural imbalances in foreign exchange supply and demand, and to pursue institutional improvements aimed at enhancing accessibility for foreign investors, including the introduction of 24-hour trading in the FX market and regulatory reforms related to the offshore use of the Korean won in transactions among nonresidents.
To bolster its capacity to absorb external shocks, the BOK said it will seek to extend currency swap arrangements that are nearing maturity and hold active discussions with partner countries to strengthen regional financial safety nets.
On the issue of stablecoins, the BOK said it will actively participate in relevant legislative discussions with the government and the National Assembly, while working to establish a governance framework that takes macroeconomic stability into account.
(Yonhap)
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