Decision Statement of the July Monetary Policy Meeting
After deciding to keep the base interest rate unchanged on July 10, the Monetary Policy Committee of the Bank of Korea stated, "Although growth remains sluggish and there is significant uncertainty in trade negotiations, housing prices in the Seoul metropolitan area and household debt have expanded considerably." The committee added, "It is also necessary to examine the impact of recently strengthened household debt measures."
Lee Changyong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee plenary meeting held at the Bank of Korea in Jung-gu, Seoul, on the morning of July 10, 2025. Photo by Joint Press Corps
In the statement released after the Monetary Policy Direction meeting held that morning, the Monetary Policy Committee said, "Going forward, monetary policy will maintain a rate-cutting stance to mitigate downside risks to growth. However, we will closely monitor changes in domestic and external policy conditions, inflation trends, and financial stability, and will determine the timing and pace of any further base rate cuts accordingly."
Regarding the Korean economy this year, the committee noted, "While construction investment continued to decline, consumption improved due to the easing of domestic political uncertainty, and export growth persisted, leading to a slight alleviation of sluggish growth." The committee further assessed, "Looking ahead, consumption is expected to gradually recover due to improved economic sentiment and the supplementary budget, while exports are likely to slow down due to the imposition of U.S. tariffs." The committee also emphasized, "The future growth path faces very high uncertainty, particularly regarding the progress of trade negotiations with the United States and the pace of domestic demand recovery."
On inflation, the committee stated, "Due to low demand pressure and stable international oil prices, inflation will likely remain around 2%, which is generally in line with the May forecast of 1.9%." The committee added, "The future inflation trajectory will be influenced by domestic and global economic conditions, exchange rates and international oil prices, and government price stabilization measures."
Regarding financial and foreign exchange markets, the committee commented, "The won-dollar exchange rate fluctuated significantly in the mid-to-high 1,300 won range, affected by the progress of trade negotiations and geopolitical risks, and is expected to remain highly volatile going forward." The committee also noted, "The housing market in Seoul and the metropolitan area showed signs of overheating but has somewhat stabilized following the implementation of the government's household debt measures, while regional markets continued to underperform." The committee further pointed out, "Household loans continued to grow rapidly, driven by increased housing transactions."
The following is the full text of the Monetary Policy Direction decision statement.
The Monetary Policy Committee has decided to maintain the Bank of Korea's base rate at the current level of 2.50% until the next monetary policy decision, thereby conducting monetary policy accordingly. The domestic economy is expected to continue its low growth trend for the time being, with inflation remaining stable, and there is significant uncertainty regarding trade negotiations and other factors. However, given the substantial rise in housing prices and household debt in the Seoul metropolitan area, as well as the need to assess the impact of recently strengthened household debt measures, the committee judged that maintaining the current base rate level is appropriate.
Looking at the global economy, uncertainty in the trade environment persists, and the effects of high tariffs are becoming more pronounced, leading to a gradual slowdown in growth. Inflation trajectories are expected to diverge across countries. In international financial markets, risk aversion has weakened due to easing tensions in the Middle East and some progress in U.S.-China trade negotiations, resulting in significant increases in major stock indices. U.S. long-term Treasury yields have declined slightly due to expectations of renewed rate cuts by the Federal Reserve, while the U.S. dollar has continued its weakening trend. Going forward, the global economy and international financial markets are likely to be affected by the outcomes of tariff negotiations between the U.S. and major countries, as well as changes in major countries' monetary policies.
In the domestic economy, construction investment continued to decline, but consumption improved due to the easing of domestic political uncertainty, and export growth persisted, leading to a slight alleviation of sluggish growth. Employment increased overall, but key sectors such as manufacturing continued to see declines. Looking ahead, consumption is expected to gradually recover due to improved economic sentiment and the supplementary budget, while exports are likely to slow due to the imposition of U.S. tariffs. However, the future growth path faces very high uncertainty, particularly regarding the progress of trade negotiations with the United States and the pace of domestic demand recovery.
Regarding domestic inflation, the consumer price inflation rate in June rose to 2.2%, driven by continued increases in processed food prices and base effects from agricultural and petroleum product prices. However, core inflation (excluding food and energy) remained at 2.0%, the same as the previous month, and short-term inflation expectations fell to 2.4%, down from 2.6% in the previous month. Going forward, the inflation rate is expected to remain around 2%, supported by low demand pressure and stable international oil prices. Accordingly, both consumer price and core inflation rates for this year are projected to be generally in line with the May forecasts of 1.9%. The future inflation trajectory will be influenced by domestic and global economic trends, exchange rate and international oil price movements, and government price stabilization measures.
In financial and foreign exchange markets, stock prices rose sharply due to improved investor sentiment driven by expectations for capital market reforms, while long-term government bond yields increased due to the potential for expanded government bond issuance. The won-dollar exchange rate fluctuated significantly in the mid-to-high 1,300 won range, affected by the progress of trade negotiations and geopolitical risks, and is expected to remain highly volatile going forward. The housing market in Seoul and the metropolitan area showed signs of overheating but has somewhat stabilized following the implementation of the government's household debt measures, while regional markets continued to underperform. Household loans continued to grow rapidly, driven by increased housing transactions.
The Monetary Policy Committee will continue to monitor growth trends and operate monetary policy to ensure that inflation stabilizes at the target level over the medium term, while also paying close attention to financial stability. The domestic economy is expected to maintain a stable inflation rate but continue its low growth trend for the time being, with significant uncertainty surrounding trade negotiations and other factors. From a financial stability perspective, risks in the Seoul metropolitan housing market and household debt have increased, making it necessary to assess the effectiveness of macroprudential policies, while also remaining vigilant regarding the potential for increased volatility in the foreign exchange market. Therefore, monetary policy will maintain a rate-cutting stance to mitigate downside risks to growth, but in this process, the committee will closely monitor changes in domestic and external policy conditions, inflation trends, and financial stability, and will determine the timing and pace of any further base rate cuts accordingly.
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