BOK Stands Pat as Weak Won and Property Market Rally Remain Concerns

The Bank of Korea (BOK) left its benchmark interest rate at 2.5 percent for a fifth consecutive meeting on January 15, 2026, in line with expectations. The decision reflects the central bank's cautious stance amid a weak won and persistent inflationary pressures. This marks the continuation of a policy pause that began in July 2025.

The central bank's decision to keep rates steady comes despite an ongoing easing cycle that started in October 2024. During that period, the BOK cut rates by 100 basis points to support economic activity. However, the weakened won and rising import prices have constrained the scope for further easing.

The won has been Asia's weakest-performing currency in 2026, with a 10-day losing streak against the U.S. dollar. The currency's weakness has raised concerns over capital outflows and upward inflationary pressure, prompting the central bank to delay additional cuts.

Why Did the BOK Decide to Hold Rates?

The BOK cited the volatility of the won as a key factor in its decision. A rate cut could have worsened the currency's decline, exacerbating inflation through higher import costs. The won had fallen to mid-1,480 per dollar in December 2025 before rebounding to around 1,420 due to government interventions.

Rising inflation also influenced the decision. Consumer prices rose 2.3 percent year-on-year in December, exceeding the BOK's 2 percent target for the fourth consecutive month. Import prices have also risen for six consecutive months, signaling persistent inflationary risks.

Policymakers are also monitoring the housing market, where prices in Seoul have risen for 48 consecutive weeks. The BOK is assessing the impact of tighter regulations on home purchases and lending caps, which have slowed but not eliminated price increases.

What Are the Implications for the Won and Inflation?

The weak won has already contributed to inflationary pressures. The BOK expects its 2026 inflation forecast to reach 2.1 percent, up from earlier projections. This reinforces concerns that further depreciation of the currency could lead to higher import costs and sustained inflation.

Meanwhile, household credit and mortgage debt continue to rise. Total household loans in December increased to 1,173.6 trillion won, reaching a record high. Growth in the July-September quarter was the fastest since 2021, despite tighter lending regulations.

The government has forecast 2 percent economic growth for 2026, slightly more optimistic than the BOK's 1.8 percent projection. However, the government warns that without structural reforms, potential growth could fall toward 1 percent by the 2030s.

What Are Analysts Watching Next?

Analysts are closely watching whether the BOK will preserve language in its policy statement signaling room for future easing or shift toward a more neutral stance. Governor Rhee Chang-yong is expected to address reporters later in the week to explain the board's decision and any potential dissenting votes.

The housing market remains a key focus. While price gains have slowed, apartment transactions in Seoul have rebounded in December after a sharp decline in November. Continued resilience could prompt further policy interventions.

The U.S. Treasury also highlighted concerns about the won's depreciation during a recent meeting with South Korea's Finance Minister. Treasury Secretary Scott Bessent emphasized that excess volatility in the foreign exchange market is undesirable.

Market participants are awaiting further guidance from the BOK and global central banks. The U.S. Federal Reserve has signaled more rate cuts in 2026, which could influence the BOK's future decisions. However, domestic factors, including currency and housing risks, may limit the scope for additional easing.