Growth and inflation expectations have both been raised! The Bank of Korea has kept interest rates unchanged as scheduled, indicating that it will remain unchanged in the next six months.

After revising economic growth and inflation forecasts upwards, the Bank of Korea on Thursday kept its benchmark interest rate unchanged at 2.5%, in line with economists' expectations, continuing the pause in rate cuts that began in July last year. At the same time, the Bank of Korea indicated that it is unlikely to adjust its policy in the next six months, providing policymakers with time to observe relevant risks. The Bank of Korea maintained a wait-and-see attitude in weighing financial stability risks. A new forward guidance framework introduced showed that the median forecast for the benchmark interest rate six months ahead by the Bank of Korea's committee is 2.5%, highlighting that the committee has shifted to a neutral stance. This shift was first signaled in January when the Bank of Korea removed statements suggesting further easing in its policy statement. Alongside the rate decision, the Bank of Korea also released updated forecasts, raising the economic growth forecast for 2026 from 1.8% predicted in November last year to 2%. The upward revision in growth expectations reflects the resilience of the economy. Previously, the country's economy contracted by 0.3% quarter-on-quarter in the fourth quarter of 2025, marking the second contraction that year. The Bank of Korea also raised the inflation forecast from 2.1% to 2.2%, indicating that overall price pressures remain under control, close to its 2% target level. Nomura economist Jeong-Woo Park stated, "This year's 2% growth seems to be mainly driven by equipment investment. Construction and consumption do not seem to be showing meaningful signs of recovery, so this boost is seen as temporary, and growth is expected to return to the potential level of 1.8% next year." The Bank of Korea's statement on Thursday strengthened the view of balanced risks. The committee noted that chip exports supported economic growth and that inflation, even if it remains near the target, may slightly increase. Meanwhile, risks from the real estate market and U.S. trade policy still require further observation. At a time when the Bank of Korea has kept its stance unchanged, recent economic data have eased pressure on officials to take new policy actions. In January, consumer prices rose by 2% year-on-year, and core inflation also reached 2%, aligning with the central bank's target. Boosted in part by a rise in the stock market, consumer confidence in February reached its highest level since November last year. Meanwhile, demand for semiconductors related to artificial intelligence supported export performance. Economist Hyosung Kwon remarked, "The next Bank of Korea governor will face a complex situation. The economy is gaining momentum driven by strong global demand for computer chips. Inflation remains stable at the target level of 2%. However, concerns about rising housing prices in Seoul continue." Seoul apartment prices have been rising for over a year (on a weekly basis) and concerns about financial stability risks have been sparked by investors increasing mortgage debt. However, according to data from the Korea Real Estate Commission, the recent rate of increase has slowed to the lowest level in about five months. And a survey by the Bank of Korea this week showed that consumers' expectations for housing prices saw the largest drop in three and a half years, indicating a cooling of expectations in the real estate market. As the term of the current governor of the Bank of Korea is set to end in April, one of Rhee Chang Yong's significant achievements in terms of transparency in interest rate outlook is this framework reform. Over the past few months, the Bank of Korea has been testing a forward guidance form similar to a "dot plot." Rhee Chang Yong mentioned in September last year that this initiative helps enhance transparency and market communication in an environment nearing the lower bound of interest rates. Under the new framework, all seven members of the Monetary Policy Committee, including Rhee Chang Yong, anonymously submit forecasts, with each member allowed to submit up to three "dots" representing the benchmark, upside scenario, and downside scenario with a total of 21 "dots" possible on the chart. Following the announcement of the rate decision, the South Korean won remained stable. The Korean won has strengthened against the U.S. dollar since the beginning of this year, following a weakening trend at the end of 2025. The one-month implied volatility of the U.S. dollar against the Korean won has fallen, indicating a relief in short-term pressures in the foreign exchange market. Rhee Chang Yong is expected to hold a press conference later on Thursday, where he may further elaborate on the policy outlook and the committee's view on balancing strong exports with weak domestic demand.