South Korea Keeps Interest Rate Unchanged
Bank of Korea (BOK) Governor Rhee Chang-yong and fellow monetary authorities unanimously voted to hold the seven-day repurchase rate steady, adhering to widespread market predictions. The Korea Financial Investment Association's survey of 100 fixed-income specialists revealed 96 percent anticipated no rate adjustment this month.
The central bank has frozen rates in July, August, October, and November of 2025, following four quarter-point cuts implemented in February and May of 2025, and October and November of 2024.
Rhee told a press conference that all the monetary policymakers agreed to this month's rate freeze decision, saying that five of six policymakers saw a high possibility of keeping the policy rate at 2.50 percent even after three months.
Currency instability emerged as a primary concern driving the hold decision. The South Korean won closed 2025 at 1,439.50 per U.S. dollar, subsequently climbing into the mid-to-upper 1,400-won territory during January trading.
The BOK said in a statement that the higher exchange rate was driven by the U.S. dollar strength, the Japanese yen weakness, heightened geopolitical risks and continued overseas investment by local residents.
December saw the U.S. Federal Reserve trim its federal funds rate target range by 25 basis points to 3.50-3.75 percent, compressing the U.S.-South Korea rate differential to 1.25 percentage points. Additional BOK rate reductions could potentially accelerate won depreciation given this persistent gap.
Household indebtedness at deposit-accepting financial institutions reached 1,173.6 trillion won ($794.2 billion) by late December 2025, declining 2.2 trillion won ($1.5 billion) month-over-month. Despite recording the first monthly decrease in nearly a year, authorities remain alarmed by the debt mountain's scale.
South Korea's property sector experienced volatile trading patterns throughout recent months, with nationwide apartment transactions fluctuating between 35,000 units in July, 47,000 in September, and 43,000 in November 2025.
The government of President Lee Jae Myung unveiled measures in the second half of 2025 to curb housing price increases, but demand remained to purchase new homes with borrowed money, especially in Seoul.
Semiconductor exports provided crucial relief from rate-cut pressures while consumer confidence staged a comeback. The BOK forecast that the Asian country's export was expected to remain favorable due to the strong semiconductor sector while domestic demand was also projected to sustain its improvement trend, led by a continued recovery in consumption.
South Korea's exports—constituting approximately half of the trade-dependent economy—expanded 3.8 percent to a record $709.69 billion in 2025. Semiconductor shipments alone surged 22.2 percent to an all-time high of $173.39 billion throughout the year.
The composite consumer sentiment index (CCSI), which gauges the sentiment of consumers over economic situation, fell 2.5 points over the month to 109.9 in December, but it stayed above 100 to indicate that optimists outnumbered pessimists.
Inflation expectations, which measure the outlook among consumers over headline inflation for the next 12 months, stood unchanged at 2.6 percent in December on a monthly basis.
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