Unanimous Decision to Freeze February Base Rate: "Financial Stability Risks Considered"

Bank of Korea Releases February MPC Minutes

Monetary Policy Should Focus on Reducing Financial Stability Risks

K-Shaped Growth Complicates Monetary Policy Decisions

The Bank of Korea's Monetary Policy Committee (MPC) unanimously decided to keep the base rate unchanged at 2.50% per annum last month. This decision was made to support the ongoing improvement in the domestic economy, while also taking into account financial stability risks such as household debt and foreign exchange volatility. The committee agreed that future monetary policy decisions should be made by closely monitoring changes in both domestic and external policy conditions, inflation trends, and financial stability.

According to the minutes of the 4th regular MPC meeting of 2026 (held on February 26), released by the Bank of Korea on the 17th, one committee member stated, "Given the current domestic and external economic conditions, exchange rate and real estate market stability remain pressing economic policy tasks and must continue to be prioritized when determining the direction of monetary policy." The member also emphasized, "Despite the inherent limitations of monetary policy, it is necessary to cooperate in efforts to stabilize the market." At last month's MPC meeting, all six committee members, except for Governor Lee Chang-yong, voted in favor of keeping the base interest rate steady at 2.50% per annum.

Specifically, the committee noted that while robust consumption and increased investment in artificial intelligence (AI) in advanced economies, as well as stimulus measures and trade diversification in emerging markets, are positive factors, there are also risks. These include the impact of U.S. tariff policies, excessive flows into risk assets, and a potential deterioration of fiscal soundness. For the domestic economy, anticipated drivers of growth to around 2% include an increase in household income, improved consumer sentiment, and higher IT exports centered on semiconductors. However, risks such as rising market interest rate pressures, high foreign exchange supply-demand volatility, the spread of housing price increases outside the Seoul metropolitan area, and higher rental prices remain. The committee member commented, "Since the selective support function of monetary policy for the real economy is limited, monetary policy should focus on reducing financial stability risks."

Some committee members also expressed the view that "Although the government’s stricter real estate tax policies have somewhat slowed price increases in preferred areas of the Seoul metropolitan housing market, price increases and transaction volumes are expanding in surrounding and deregulated areas. Therefore, it is necessary to monitor the impact of the government’s future housing supply measures."

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee plenary meeting held at the Bank of Korea headquarters in Jung-gu, Seoul, on the 26th. 2026.02.26 Photo by Joint Press Corps

Opinions were also shared regarding exchange rate uncertainty and inflation volatility. Another committee member pointed out, "In the domestic foreign exchange sector, the won-dollar exchange rate has somewhat decreased to the low-to-mid 1,400 won range, but as the synchronization with neighboring currencies such as the Japanese yen and the Taiwan dollar intensifies, volatility remains high." The member added, "Going forward, increased semiconductor exports and the resulting expansion of the current account surplus, as well as inflows of funds following the World Government Bond Index (WGBI) inclusion, are expected to help resolve supply-demand imbalances in the foreign exchange market, but uncertainty remains significant."

Another member also commented, "While the consumer price inflation rate is hovering near the 2% target, there are upside risks such as expansionary fiscal policy, higher import prices due to a strong exchange rate, and geopolitical issues. Although the economic recovery continues, given the increased volatility of key price variables in the financial markets, it would be prudent to keep the base rate unchanged at this meeting and consider future changes based on the economy’s growth path and financial stability."

The widening gap between the IT and non-IT sectors, described as a K-shaped economic trend, was also raised. The member noted, "Growth is increasingly concentrated in the IT sector, particularly semiconductors, leading to the so-called K-shaped economy, which complicates monetary policy decisions." The member continued, "As there is a possibility this K-shaped economic structure could become entrenched, fundamental consideration of monetary policy in an economy with such pronounced sectoral disparities is needed." The member added, "Since global economic growth could remain stronger than expected, potentially amplifying global inflationary pressures, it is necessary to closely monitor inflation trends going forward."

This content was produced with the assistance of AI translation services.