The Bank of Korea has intensified its hawkish policy shift stance, indicating that further interest rate increases will be necessary at an appropriate time, as surging property prices, elevated household debt, and leveraged investments are heightening financial imbalance risks.

In its semi-annual Financial Stability Report released on Wednesday, the central bank stated that the country's financial system has remained broadly stable, supported by strengthening economic growth, resilient financial institutions, and a robust external payments position, despite rising domestic and external uncertainties.

Nevertheless, the report cautioned that financial imbalances could accumulate further, fueled by accelerating home price increases in Seoul and surrounding areas and growing investor reliance on leverage to purchase assets.

The central bank also noted that while banks and other financial institutions maintain capital and liquidity buffers, credit risks for vulnerable borrowers and firms are on the rise.

The report stated, "The Bank of Korea has maintained its benchmark interest rate at 2.5% since the second half of 2025, but it sees a need to raise the policy rate at an appropriate time, considering inflation pressures, economic conditions, and financial stability risks."

Monetary Policy Board member Hwang Kunil, who oversaw the report, warned that deepening polarization across the economy could become a source of financial instability. In a separate statement, he highlighted that increasing stress on vulnerable sectors, coupled with a renewed rise in household debt linked to a recovering property market and leveraged investments, requires close monitoring.

The Bank of Korea affirmed it would continue to coordinate monetary policy with macroprudential measures while strengthening supervision over household debt, leveraged investments, and liquidity risks in the non-banking sector.

Policymakers added that authorities should remain vigilant against potential spillover effects from global oil prices, interest rates, and currency markets.

This report adds to a series of increasingly hawkish signals from the central bank under Governor Shin Hyun-son. He has indicated that stronger growth, persistent inflation pressures, exchange rate risks, and rising home prices are increasingly pointing toward the same policy direction, thereby reducing the trade-offs that typically complicate monetary policy decisions.