BOK data shows market rates rising even before Japan shock, limiting room to ease despite steady policy pressures

South Korea’s central bank said market interest rates continued to edge higher in December, even as it kept its benchmark policy rate unchanged, underscoring tightening financial conditions driven by bond markets rather than monetary policy. In data released Tuesday, the Bank of Korea (BOK) showed that yields on market-linked instruments — including certificates of deposit, repurchase agreements, financial bonds and government bond-linked rates — rose month-on-month, reflecting higher funding costs across the financial system.

The release follows the BOK’s decision earlier this month to hold its base rate at 2.5% for a fifth consecutive meeting, as policymakers balance slowing growth against risks tied to household debt, housing prices in the Seoul metropolitan area and foreign exchange volatility. Korean bond yields have also surged, with recent moves amplified by a sharp rise in Japanese government bond yields that spilled over into regional debt markets.

South Korea’s central bank said market interest rates continued to edge higher in December, even as it kept its benchmark policy rate unchanged, underscoring tightening financial conditions driven by bond markets rather than monetary policy. In data released Tuesday, the Bank of Korea (BOK) showed that yields on market-linked instruments — including certificates of deposit, repurchase agreements, financial bonds and government bond-linked rates — rose month-on-month, reflecting higher funding costs across the financial system.

The release follows the BOK’s decision earlier this month to hold its base rate at 2.5% for a fifth consecutive meeting, as policymakers balance slowing growth against risks tied to household debt, housing prices in the Seoul metropolitan area and foreign exchange volatility. Korean bond yields have also surged, with recent moves amplified by a sharp rise in Japanese government bond yields that spilled over into regional debt markets.

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