By Veronica Dudei Maia Khongwir
BENGALURU, Feb 24 (Reuters) - South Korea’s central bank will keep its key interest rate unchanged at 2.50% on Thursday and through 2026, a Reuters poll forecasts, as policymakers grapple with a volatile currency and an overheating housing market.
The Korean won has remained under pressure, keeping authorities on high alert and prompting action to curb excessive volatility, including the use of an FX swap line between the Bank of Korea and the National Pension Service.
Since the last rate cut last May the currency has fallen 5.2% and has also drawn scrutiny from the U.S. Treasury, reinforcing the central bank's caution over further easing amid rising financial stability risks.
Inflation in South Korea eased to a five-month low of 2.0% in January, in line with the Bank of Korea’s target, so economists see little reason for a policy shift after the central bank signalled last month its easing cycle was nearing an end and it will prioritise exchange rate stability.
All 34 economists in a February 19-23 Reuters poll, published on Tuesday, forecast the Bank of Korea would keep its base rate unchanged at 2.50% at its February 26 meeting.
"The BOK is becoming more concerned about FX and housing risks, it's not something new but in recent meetings they've been highlighting these two things which make a rate cut quite unlikely this year," said Michelle Lam, economist at Societe Generale.
She added the central bank is likely to maintain a prolonged pause, with the possibility of rate hikes emerging in 2027 as the recovery gains a firmer footing.
"Right now, CPI is contained. But if asset prices like the increase in stock prices are sustained, then that could feed into the housing market; it may be appropriate by then for the BOK to consider tightening to prevent inflation risks," Lam said.
Seoul apartment prices rose for a 55th consecutive week, increasing 0.15% in the week ending February 16, according to data released by the Korea Real Estate Board last week. The prolonged rally has heightened concerns about financial imbalances.
The rate poll also showed all 30 economists who provided end-2026 forecasts expect rates to remain unchanged through this year, marking a shift from a January poll, when a sizeable minority had predicted at least one additional rate cut.
"We changed our forecast for Q4 2026 in part because we saw slightly better than expected economic growth in the last few quarters and it appears as if the global high-tech demand fuelled by the AI bubble will give continued tailwind to Korean exports," said Frederic Neumann, chief Asia economist at HSBC.
"Also, given our view the Board is unlikely to hike from the current neutral level due to financial stability concerns, we continue to think recent hawkish market pricing is likely overly aggressive. Looking ahead, we see the policy rate unchanged throughout 2026-27 amidst a modest growth recovery and limited upside risks to inflation."
(Other stories from the February Reuters global economic poll)
(Reporting by Veronica Dudei Maia Khongwir; Polling by Pranoy Krishna and Devayani Sathyan in Bengaluru and Jihoon Lee in Seoul; Editing by Vivek Mishra and Susan Fenton)
