Bank of Korea Holds Policy Rate at 2.50% for Sixth Straight Meeting, Upgrades Growth Outlook
Bank of Korea (BOK) kept its benchmark interest rate unchanged at 2.50% on February 26, extending a pause that has now lasted six consecutive meetings. The decision was unanimous.
The central bank had lowered the policy rate by a cumulative 1.00 percentage point through May last year, shifting to an easing stance. Since July, however, it has maintained the rate at 2.50%, citing a balance between stabilizing inflation, improving growth conditions, and lingering financial stability risks.
In its policy statement, the Monetary Policy Board said inflation is moving near its target level in a stable manner, while growth is showing better-than-expected improvement. At the same time, risks related to financial stability — including exchange rate volatility and asset markets — remain present, making it appropriate to maintain the current policy stance.
Growth Forecast Raised to 2.0%
The BOK revised its 2026 real GDP growth forecast upward to 2.0%, from 1.8% projected in November. The upgrade reflects stronger semiconductor exports, resilient global demand, and improved equipment investment.
While construction investment is expected to remain weak, private consumption is projected to continue recovering, supported by better corporate earnings and income conditions. The central bank also noted that first-quarter growth is likely to exceed earlier expectations, aided by a rebound from the previous quarter and robust chip exports.
However, growth remains uneven. The contribution from the IT sector, particularly semiconductors, is expected to account for a significant share of overall expansion, while non-IT sectors show comparatively modest improvement. The BOK indicated that if the current AI-driven semiconductor boom weakens, growth could moderate accordingly.
The 2027 growth forecast was slightly lowered to 1.8%, reflecting expectations of a gradual easing in semiconductor-driven momentum next year.
Inflation Outlook Edges Higher
The central bank raised its 2026 consumer inflation forecast to 2.2%, up 0.1 percentage point from its previous projection. Core inflation is expected to reach 2.1%.
The upward revision partly reflects cost pressures in certain electronics products linked to higher semiconductor prices. Although January headline inflation stood at 2.0%, close to the BOK’s target, officials noted that upside risks remain, including exchange rate movements, global oil prices, and domestic demand recovery.
With both growth and inflation forecasts revised upward, the likelihood of near-term rate cuts has diminished.
Exchange Rate, Housing, and Financial Risks
The BOK cited continued volatility in the won-dollar exchange rate and housing market conditions as additional reasons for caution. The policy rate gap with the United States remains at 1.25 percentage points, and a premature rate cut could amplify currency fluctuations.
While the Korean won has stabilized somewhat in recent weeks, policymakers indicated that external uncertainties — including U.S. trade policy and geopolitical risks — remain factors to monitor.
Developments in asset markets also remain under scrutiny. Bond yields have risen in recent weeks, with the three-year government bond yield staying above 3% since mid-January, reflecting shifting market expectations about the future rate path.
First Release of Six-Month Rate “Dot Plot”
For the first time, the BOK published a six-month forward rate outlook in the form of a dot plot. The projection aggregates anonymous views from the seven Monetary Policy Board members, each submitting three rate expectations, producing a total of 21 data points.
The majority — 16 out of 21 projections — indicated that the policy rate would remain at 2.50% six months from now. Four projections suggested a 25-basis-point cut to 2.25%, while one indicated a possible increase to 2.75%.
The central bank plans to release the six-month dot plot four times a year — in February, May, August, and November — alongside updated economic forecasts.
Extended Pause Likely
Market participants are increasingly focused not on the timing of a rate cut, but on how long the current pause will last. With growth improving and inflation remaining near target, the case for additional easing has weakened.
At the same time, the presence of a small minority projecting a rate hike signals that policy direction is no longer firmly biased toward easing.
For now, the BOK appears set to maintain a wait-and-see stance, monitoring domestic recovery, semiconductor cycle dynamics, global economic conditions, and financial stability risks before making its next move.
