Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
BOK raises 2026 growth outlook to 1.8% as exports show strength
Bank of Korea Gov. Rhee Chang-yong speaks during a press conference at the central bank in Seoul, Thursday. Yonhap
By Lee Yeon-woo
Central bank holds rate for 4th time, signals prolonged pause
The Bank of Korea (BOK) on Thursday nudged its 2025 economic growth forecast for the country upward to 1 percent from 0.9 percent, and raised its 2026 projection to 1.8 percent from 1.6 percent, citing resilient exports and a gradual recovery in domestic demand.
The improved growth outlook underpinned the central bank's decision to hold its benchmark rate at 2.5 percent in its final policy meeting of the year. Concerns over currency instability and housing market imbalances also persisted.
The rate has remained on hold since May, marking the fourth consecutive pause. The interest rate gap with the U.S. now stands at 1.5 percentage points at the upper bound of the Federal Reserve’s policy rate.
"Following the conclusion of Korea-U.S. trade negotiations and a robust global semiconductor cycle, growth in exports and facility investment is likely to exceed earlier expectations," BOK Gov. Rhee Chang-yong told reporters. "Expansionary fiscal policy and improving economic sentiment are also expected to accelerate the pace of recovery."
The central bank now sees this year's current account surplus reaching $115 billion — an all-time high if realized. The 2026 surplus forecast was also revised to $130 billion, up sharply from $85 billion.
Yet, pressure on the Korean won continues to cloud the outlook.
The currency closed at 1,477 per dollar on Monday, its weakest since April, when U.S. tariff uncertainties flared. It has recently traded in the high-1,460 won range, following verbal interventions by authorities. Korea's real effective exchange rate has dropped to levels last seen during the 2008-09 global financial crisis.
Rhee said he was less concerned about volatility, but pointed to growing investment in overseas equities as a domestic risk.
"Many young people are investing abroad aggressively, calling it 'cool,' but I'm not sure the risks can be managed properly when the exchange rate fluctuates. I see this as a uniquely Korean situation," he said.
"If the currency move were driven by foreign investors, it would be harder to reverse. But if we can curb excessive one-sided positioning among domestic investors, the adjustment could come relatively quickly."
Housing market risks are also adding to the central bank's concerns. Despite a series of government measures to cool demand, Seoul apartment prices rose 1.72 percent for the month as of Nov. 10 — the biggest monthly increase since September 2020, according to KB Real Estate.
In response, the central bank's forward guidance shifted from "maintaining a rate-cut stance" in October to "leaving room for potential rate cuts," hinting at a prolonged hold rather than imminent easing.
Views remain split on the outlook. Some anticipate a rate cut in early 2026, while others believe the easing cycle may be over.
Kim Myung-sil, a researcher at iM Securities, said the central bank is likely to hold through at least the first half of 2026.
"Inflation for 2025 to 2026 is projected to stabilize around 2 percent, but upside risks have not fully dissipated," Kim said. "With the Korea-U.S. policy rate gap already narrowed to roughly 150 basis points, any additional rate cuts by the BOK could be interpreted by markets as a catalyst for the won's further weakness."
On speculation about future policy moves, Rhee said three board members still support keeping the option for a cut on the table.
"The interpretation is up to the market," he said. "But the 3-3 split indicates that both a cut and a hold remain possibilities, and that we'll make decisions based on incoming data."