^{Photo: The Business Times}

South Korea’s central bank has taken a more cautious stance on monetary easing, holding interest rates steady for a fourth consecutive meeting while warning that growing currency and inflation risks may limit its ability to cut rates further. The Bank of Korea left its benchmark rate unchanged at 2.50 percent, matching market expectations, and upgraded both its growth and inflation outlooks for the year to 1.0 percent and 2.1 percent respectively.

The most notable signal came from the bank’s revised forward guidance. The long-standing phrase indicating that policymakers would “maintain its rate cut stance” has been removed. In its place, the bank stated that it will decide “whether and when” to pursue additional cuts, suggesting that the end of the current easing cycle may be approaching. The shift came as the won continued its broad decline, triggering market volatility and pushing December futures on three-year treasury bonds lower.

Currency Weakness and Inflation Pressures
Bank of Korea Governor Rhee Chang-yong emphasized that the continued slide in the Korean won poses a growing risk. The currency fell nearly 4 percent this quarter, making it one of the weakest performers in Asia. Rhee warned that the won’s volatility was beginning to show “herd-like behaviour,” raising the possibility that imported goods could become more expensive and contribute to persistent inflation.

South Korea’s broader economic conditions are becoming increasingly difficult to manage. Consumer spending is beginning to recover, but the falling currency limits the central bank’s flexibility. Policymakers must avoid worsening inflation while supporting domestic demand. Rising housing prices in Seoul further complicate the outlook. Apartment prices in the capital climbed 0.2 percent in the week ending November 17, reinforcing concerns that excessive liquidity could spark financial instability.

Analysts now expect the next possible rate cut to be pushed into the first quarter of next year rather than late this year. Many predict that the central bank will keep rates on hold for an extended period unless clear signs of economic weakness emerge. Economists note that while further easing cannot be ruled out entirely, the probability is shrinking as inflation risks become more prominent.

Financial Market Pressures Intensify
Large purchases of U.S. stocks by South Korean retail investors and pension funds have contributed to the won’s slide, driving it to one of the worst performances in the region after the Japanese yen. Governor Rhee described the scale of overseas equity buying as “worrisome.”

Meanwhile, the government has begun holding emergency consultations with major financial players including the National Pension Service, exporters and brokerage firms to discuss steps to stabilize the dollar-won market. However, authorities have not yet announced specific intervention measures.

Within the central bank, sentiment is also shifting. Only three of the seven monetary policy board members remain open to a rate cut within the next three months, down from four at the previous meeting—another sign of a gradual move toward a more neutral stance.

Looking Ahead to 2026
Despite near-term uncertainties, the Bank of Korea expects the economy to gradually regain momentum. Its latest projections indicate growth of 1.8 percent in 2026 and inflation holding at 2.1 percent. Still, policymakers face a delicate balancing act as they attempt to manage a weakening currency, elevated asset prices and a vulnerable global environment without undermining domestic stability.

With inflation threats rising and the won under pressure, the era of steady rate cuts in South Korea may be drawing to a close as the central bank recalibrates its policy path for the year ahead.