South Korea Holds Interest Rates Amid Hot Housing Market, Plans Stricter Mortgage Rules

South Korea's central bank, the Bank of Korea, maintained its policy interest rate at 2.50% amid concerns about a resurging housing market and a weakening won, which have limited the scope for further monetary easing despite a slowing economy. Policymakers have implemented cumulative rate cuts since October 2024 to support growth, but the recent rise in home prices and financial stability risks have shifted focus towards managing these challenges rather than further easing. The government has introduced stricter mortgage regulations for first-time buyers in Seoul, reducing loan-to-value ratios and capping maximum mortgages to curb excessive borrowing and improve housing affordability. Bank of Korea Governor Chang Yong Lee emphasized that simply increasing housing supply will not stabilize prices due to ongoing population influx, highlighting the need for broader structural reforms including education and admissions policies. Meanwhile, fresh housing market rules have lowered bond yields and sparked speculation that the central bank might consider rate cuts if home sales and lending slow down, balancing the complex interplay between inflation, growth, and financial stability. Overall, South Korea faces a delicate challenge in managing an overheating housing market while supporting economic growth and maintaining financial stability.