SEOUL, February 26 (AJP) - The Bank of Korea (BOK) kept its benchmark interest rate unchanged at 2.5 percent on Thursday, extending a pause that has been in place since May last year, as surging asset prices rekindle concerns over leveraged investing and record-high household debt.
The decision at the central bank’s second policy meeting of 2026 was widely expected. In January, the BOK subtly shifted its policy language, removing references that implied further easing and signaling a more cautious stance amid financial stability risks.
Behind the hold lies a delicate balancing act. While growth uncertainties persist in an unpredictable global trade environment, domestic liquidity remains ample. Broad money (M2) rose 0.6 percent in December from a year earlier, underscoring a still-expansionary financial backdrop.
The pressing concern for policymakers is debt.
As of the fourth quarter of last year, household credit reached 1,978.8 trillion won ($1.37 trillion), up 14 trillion won from the previous quarter and edging closer to the symbolic 2,000 trillion won threshold.
Despite repeated government measures to curb mortgage lending — the main driver of credit expansion — borrowing momentum has proven resilient. Capital-region housing prices remain heated, even after successive tightening steps.
At the same time, equities are staging a historic surge.
The KOSPI has soared roughly 42 percent in just the first two months of this year, following a 76 percent jump last year. The pace has drawn a wave of retail investors back into the market — many relying on borrowed funds.
Outstanding margin loans climbed sharply from 28.7 trillion won as of Jan. 15 to 31.7 trillion won by Wednesday, reflecting aggressive leveraged positioning.
Such dynamics heighten systemic sensitivity. If the Korean won were to weaken sharply again, any acceleration of foreign capital outflows could trigger forced liquidations among leveraged domestic investors, amplifying market volatility.
For the moment, exchange-rate risks have moderated.
The dollar, which hovered around 1,460 won in January, has retreated to the 1,430-won range in February amid a broader pullback in the U.S. currency.
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