Citing a better-than-expected economic expansion, the Bank of Korea held its key policy rate unchanged and indicated no rate cuts were pending in 2026, at the conclusion of a monetary policy session on Thursday.

The central bank's seven-member monetary policy board voted unanimously to keep the policy rate at 2.50%, while also embracing a forecast that South Korea's economy would expand by 2% in 2026, rather than the previously expected 1.8%, an estimate made in November.

On inflation, South Korea's consumer price index (CPI) is expected to rise by 2.2% on year in 2026, while the CPI-core, which strips out certain food and energy bills, will rise by 2.1%, both estimates up marginally from the previous forecast, said the central bank.

The Bank of Korea has a 2% inflation target on the CPI.

South Korea's central bank unveiled a new "dot-plot framework," or chart, similar to the US Federal Reserve's, that indicates likely or expected central-bank policy interest rates in seasons ahead.

The chart indicates the Bank of Korea expects no interest cuts or hikes for the next six months, a policy stance expected by some central bank observers.

"We expect the Bank of Korea to hold rates steady throughout 2026. The odds of a hike in the fourth quarter will increase if growth and prices accelerate more than expected," said ING Think, an arm of the Dutch investment house.

Looking into next year, the Bank of Korea may begin raising rates, rather than merely pausing rate cuts, added ING Think.

"We expect the Bank of Korea to resume its rate hikes in 2027. Macroeconomic conditions, such as growth above potential and firm inflation, could justify hikes even earlier, perhaps in the fourth quarter," added the research group.