BOK rate cut hopes fade as financial risks persist

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference at the central bank in Seoul, Oct. 23. Yonhap

Expectations for a Bank of Korea (BOK) rate cut this year have diminished sharply as financial stability risks grow, analysts said Monday.

Despite resilient exports and signs of a gradual domestic demand recovery, the BOK faces mounting challenges from sticky housing price expectations and a won-dollar exchange rate hovering in the upper 1,400-won level.

The central bank's final monetary decision of the year is due Nov. 27.

The Monetary Policy Committee has held the base rate at 2.5 percent since May, following four cuts between October last year and May this year. Officials have cited concerns over real estate volatility and currency pressures as key reasons to pause further easing — factors that continue to loom over the November decision.

"Financial stability risks will be the most important reason for the committee to keep the base rate unchanged at its final meeting of 2025," said Choi Ji-uk, chief economist at Korea Investment & Securities.

"Even though investment negotiations with the U.S. have concluded, exchange rate volatility has increased further since the October meeting due to the weak yen and portfolio outflows," Choi added. "The current pace of housing price increases in Seoul is also not enough to ease the BOK's concerns."

The won briefly spiked to 1,474.9 per dollar Friday as foreign investors sold off KOSPI stocks. It has since eased to the 1,450 range following verbal intervention by authorities.

A rate cut could widen the policy gap with the U.S., which has signaled a hold in December, accelerating capital outflows. The current policy gap stands at 1.5 percentage points on the upper bound. A weaker won would also lift import costs, adding to inflationary pressure.

At the same time, concerns persist that any easing could reignite speculation in the housing market. Despite a raft of government real estate curbs, prices in Seoul remain elevated and continue to spread outward.

Seoul apartment sale prices rose 1.46 percent in October from a month earlier, according to KB Real Estate — the sharpest annual increase this year.

Meanwhile, the central bank's housing price outlook index climbed 10 points in October, reaching a four-year high as more respondents expected home prices to rise.

Market participants are now watching closely to see if the BOK's easing cycle is effectively over.

When it meets on Nov. 27, the BOK is expected to raise its 2026 growth forecast to around 1.8 percent from 1.6 percent in August, supported by resilient exports despite U.S. tariffs and a rebound in domestic demand fueled by expansionary fiscal policy.

Improving forecasts are bolstering bets on a rate hold, analysts say.

BOK Gov. Rhee Chang-yong also said in a Bloomberg TV interview on Wednesday that the "magnitude and timing of the cut or even the change of direction will depend on the new data ahead."

"Considering the broader conditions, the BOK may be able to revisit the option of cutting rates after next February, but the chances of it materializing appear slim," said Cho Yong-gu, an analyst at Shinyoung Securities. "The rate-cut cycle is effectively seen as nearing its end within a one-year window since the last cut in May."