Bank of Korea expectedly keeps rates steady at an almost three-year low

• This comes as the South Korean economy contracted in the first quarter amid weak construction activity and softening export growth.
• Goldman Sachs in a note last week said that introduction of new mortgage lending restrictions would “open the door” for a rate cut in August.

South Korea's central bank held its policy rate at 2.5%, keeping it steady at an almost three-year low.

South Korea's economy contracted by 0.2% quarter on quarter in the first three months of this year due to weak construction activity and softening export growth, while it remained flat on an year on year basis.

Goldman Sachs in a note last week said that introduction of new mortgage lending restrictions would “open the door” for a rate cut in August.

Housing prices in Seoul have spiked over 19% in June on an annualized basis, according to Goldman, prompting financial authorities to step in with measures to address rapidly expanding household loans.

The firm said that recent housing market developments had heightened the BOK's concerns about financial stability, noting that household loan growth surged to 6 trillion won ($4.27 billion) in May — the fastest pace since last October — and is estimated to have reached 7 trillion won in June.

South Korea's Kospi was up 0.74%, while the won strengthened marginally to trade at 1,372.48 against the dollar.

The country could face more economic headwinds as U.S. President Donald Trump has threatened to impose 25% tariffs on all South Korean imports starting Aug. 1 if the country fails to reach a trade deal with Washington.