BOK nudges up 2025 growth projection to 0.9% from 0.8%

Bank of Korea Gov. Rhee Chang-yong speaks to reporters at the central bank's headquarters in Seoul, Thursday. Yonhap

The Bank of Korea (BOK) slightly raised its 2025 growth forecast to 0.9 percent from 0.8 percent on Thursday, as consumption recovered more strongly than expected and exports remained solid, while sluggish construction activity weighed down the overall outlook.

The central bank also kept its benchmark rate unchanged at 2.5 percent, amid continued instability in the housing market and elevated household debt.

The updated 2025 forecast represents a 0.1 percentage point increase from May. While growth expectations were lifted by 0.4 percentage points due to a recovery in consumption fueled by the government’s second supplementary budget and strong exports, the construction sector dragged the outlook down by 0.3 percentage points.

"The main cause of the low growth rate, which remains below the potential growth level, is the sluggish construction sector," BOK Gov. Rhee Chang-yong told reporters. "If the sector merely maintains zero growth, this year’s overall growth could rise to 2.1 percent."

At the same time, the central bank maintained its 2026 forecast of 1.6 percent.

"Although the improvement in domestic demand is expected to continue, the decision reflects the possibility of a sharper export slowdown due to the full impact of U.S. tariff impositions," Rhee said. "There is a deep concern over the possibility of U.S. tariff negotiations being reignited. The future growth trajectory remains highly uncertain."

Key rate frozen at 2.5%

Despite broader signs of an economic slowdown, the BOK maintained its key interest rate at 2.5 percent, reflecting continued volatility in the housing market and household debt levels.

The Monetary Policy Board implemented 25-basis-point rate cuts in February and May and has kept rates unchanged since its July 10 meeting.

The central bank noted that an upward trend in housing prices and transaction volumes in the Seoul metropolitan area has stabilized since the implementation of the government’s household debt regulations. However, property values in Seoul’s most-sought-after districts continue to rise, and market expectations for further increases remain high.

"Interest rates alone cannot control housing prices," Rhee said. "We are determined not to fuel price expectations by injecting excessive liquidity into the market."

He added, "Since over 50 percent of Korea’s population lives in the Seoul metropolitan area, real estate prices have a significant influence on inflation."

Yet, Rhee projected that the BOK's easing stance would likely continue through the first half of next year. Five out of six Monetary Policy Board members expect the rate to fall below 2.5 percent within the next three months.

This expectation is supported by signs of stable inflation. In July, the consumer price index rose modestly by 2.1 percent, while core inflation held steady at 2 percent.

"We continue to expect a 25-basis-point cut in October, followed by another in the third quarter of 2026," said Kang Min-joo, senior economist at ING. "The timing of rate cuts in 2026 could move to the first half if the Fed eases faster or financial stability improves more than expected."