Bank of Korea Keeps Interest Rates Steady Amid Calls for Increased Housing Supply

The decision occurred after President Lee Jae Myung reportedly urged for comprehensive efforts to enhance housing supply. The Bank of Korea (BOK) cited the need to evaluate the impact of its previous rate increases and to monitor both domestic and global risk factors, particularly in light of rising uncertainties surrounding the conflict in the Middle East and monetary policies of major economies.

During the IMF-World Bank annual meetings, BOK Governor Shin Hyun Song emphasized the central bank's commitment to a restrictive monetary policy until inflation trends toward its target. He noted that inflation in South Korea has risen due to both demand and cost pressures. In September, inflation stood at 2.9%, remaining above the BOK's 2% target for the thirteenth consecutive month.

As President Lee advocates for boosting housing supply, the BOK highlighted a continuing rise in housing-related loans and a renewed acceleration in housing prices in Seoul and its surrounding areas. The Kospi index was trading down by 1.23%, while the South Korean won slightly appreciated against the dollar, reaching 1,326.1.

Despite pausing at this meeting, analysts suggest this does not signal the end of the tightening cycle. Gareth Leather, senior Asia economist at Capital Economics, anticipates another rate hike in the upcoming month. Meanwhile, South Korea's economic growth has been bolstered by surging exports of semiconductors, particularly advantageous during the current demand surge for AI technologies. September exports rose by a record 83.7% year-on-year, with semiconductor shipments increasing by 263% from the previous year.

The IMF forecasts South Korea's growth at 3.3% for 2026, with GDP growth rates of 3.8% and 3.7% recorded in the first and second quarters of this year, respectively, both exceeding expectations.