Bank of Korea kept rates unchanged, signaling uncertainty over the timing of its next cut

Following Thursday’s decision to keep rates steady, the timing of the Bank of Korea’s next rate cut will largely hinge on how housing markets respond to the macroprudential measures introduced on 15 October. The number of members who favour a rate cut in three months has fallen from five to four. Thus, we believe that the BoK’s stance has shifted marginally. The BoK affirmed its commitment to a rate-cutting approach, but noted that the timing and pace of future reductions will be calibrated according to evolving economic conditions. As such, we don’t believe the BoK’s rate-cutting cycle is finished.

Governor Rhee previously informed lawmakers that the Bank of Korea would refrain from injecting liquidity to stimulate the property market, underscoring the central bank’s strong focus on this matter. We expect housing markets to cool down at least in the near term due to stricter regulations. The long-term effects remain uncertain, though. If there are no signs of stabilisation, the government may consider raising capital gains taxes and property taxes.

The BoK is expected to resume its rate cuts in the first quarter of 2026. By that time, uncertainties related to US tariffs may be resolved, the Federal Reserve may have implemented additional rate cuts, and the housing market may show signs of stabilisation.

Regarding the growth outlook, we anticipate a 1.2% quarter-on-quarter seasonally adjusted GDP increase for the third quarter. The recovery remains fragile amid rising risks on both the upside and downside. The anticipated uptick is primarily owing to government cash handouts, suggesting that a technical payback may follow. While strong exports of semiconductors and vessels are expected to persist in 2026, their impact will likely be offset by weakness across other export categories. Thus, export growth is expected to remain relatively flat in 2026. We expect GDP to rise 1.2% year-on-year in 2025, then 1.8% in 2026.