South Korea rates: Extended pause signals stability – UOB

FXStreet Insights Team FXStreet

UOB’s Global Economics & Markets Research expects Bank of Korea to keep the base rate at 2.50% throughout 2026, after a sixth consecutive hold in February. The bank raised its 2026 GDP forecast to 2.0% and nudged up CPI projections, while stressing that financial stability risks, housing markets and bond yield spreads remain key considerations for monetary policy.

BOK seen on hold through 2026

"Bank of Korea (BOK) maintained its rate freeze at 2.50% for a sixth consecutive meeting in Feb in a unanimous vote on Thu (26 Feb). This is in line with consensus and our expectation. The decision considered improving growth outlook and persistent financial stability risks while inflation is projected to stay near to the BOK’s 2% target."

"In its macroeconomic update today, the BOK raised its 2026 GDP growth forecast to 2.0% from 1.8% (2025: 1.0%). It also lifted the headline CPI and core CPI forecasts for this year by 0.1ppt to 2.2% and 2.1% (2025: 2.1% and 1.9%), respectively, due to upward cost pressures on some items, including electronic devices from higher semiconductor prices."

"BOK lifts its forecasts for the headline and core inflation for 2026 by 0.1ppt while the inflation outlook remains consistent with BOK’s 2% target. Domestic demand remained largely contained while risks could be skewed slightly to the upside due to the KRW weakness and oil price gains from heightened geopolitical risks. Our forecast for the headline CPI is at 2.1% for 2026."

"Financial stability remains a near-term policy priority for BOK. There remain elevated risks due to the volatility of the exchange rate, sustained gains in housing prices in Seoul and its surrounding areas and high household debt ratios. Governor Rhee also pointed out at his post-meeting conference that the government bond yield-to-policy rate spread appeared to be excessive."

"Inflation is expected to remain close to the BOK’s 2% target while KRW weakness and oil price may present some upside risk"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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