The Bank of Korea has kept its base rate steady at 2.5%. This move aligns with predictions and follows a period of assessments.
Projections for South Korea’s GDP growth include a 0.9% increase in 2025 and a 1.6% rise in 2026. For inflation, the bank anticipates a rate of 2.0% in 2025, up from a previous estimate of 1.9%. By 2026, inflation is expected to reach 1.9%, slightly above the earlier forecast of 1.8%.
Governor Rhee’s Press Conference
Governor Rhee Chang-yong is scheduled to address a press conference at 0210 GMT, which corresponds to 2210 US Eastern time. This conference may offer further insights into the bank’s decision-making process and future economic outlook.
The Bank of Korea holding its rate at 2.5% wasn’t a surprise, but their new forecasts are what we need to watch. The projection for 2025 GDP growth has been slashed to a mere 0.9%, which signals deep concern about the economy’s health. This weak growth outlook puts future rate cuts firmly on the table, even with inflation sitting at the 2.0% target.
We should expect continued weakness in the Korean Won against the US dollar. With the US Federal Reserve holding its own rates near 3.75% as of last month, the interest rate difference makes holding dollars more attractive. This pressure on the Won is likely to increase if the Bank of Korea signals a move towards easing monetary policy.
For the KOSPI index, the outlook is challenging in the near term. The sharp downgrade in the growth forecast directly implies weaker corporate earnings, a fact supported by the 5.2% drop in exports we saw in July 2025. While the possibility of future rate cuts could offer some support later, the immediate headwind from a slowing economy is the dominant factor for now.
Market Volatility Expectations
The governor’s press conference later today is the next key event that will inject volatility into the market. His tone will be scrutinized for any hints about the timing of potential easing. We can use options on the USD/KRW pair to position for a significant price swing, as his comments could easily move the currency in either direction.
This situation feels similar to what we observed in late 2019, before the pandemic, when weakening global demand prompted the Bank of Korea to start cutting rates. Back then, early dovish signals preceded the actual policy change by several months. We could be entering a similar period where the central bank’s forward guidance becomes the primary market driver.
