BOK Governor Rhee Chang-yong speaks during a press conference at the central bank in Seoul, Thursday. Yonhap

The Bank of Korea (BOK) kept the key policy rate unchanged at 3.5 percent, Thursday, the 13th consecutive freeze, while shifting the focus to the timely containment of rapidly increasing household debt and rising property prices.

Inflation stabilizing to the central bank's target of 2 percent is an easing positive, BOK Governor Rhee Chang-yong said.

However, equally important is curbing household debt before it spirals out of control, a critical task under the financial stability mandate of the central bank alongside price stability.

Four members of the BOK's rate-setting Monetary Policy Committee indicated they were open to the possibility of easing in three months. The remaining two believed the current restrictive policy should be maintained during that period. In July, only two members had expressed favorable views on easing within the three-month horizon.

“Financial stability is of a greater priority for now, despite inflation showing signs of continued downtrend toward 2 percent,” Rhee said during a press conference at the central bank in Seoul.

Recently heightened concerns over an economic slowdown due to a restrictive monetary policy, in that sense, lack consideration for the central bank's mandate, he said.

"State think tanks have called for a prompt easing because their focus on consumption and economic growth does not account for financial stability."

The household debt buildup involves the most interest-sensitive spending, tied almost exclusively to real estate market sentiment and influenced significantly by the availability of market liquidity, he stressed.

"The country's property market is fraught with major red flags, as indicated by the latest data. We should prioritize curbing debt more urgently for the time being, thus not making the mistake of expanding liquidity," he said.

The aftereffects of rate cuts on consumption are diminishing, he added, due to the population decline.

“The economically most productive age group aged 20-49 is shrinking, while their older, low-paid counterparts over 65 with reduced purchasing power are increasing. Monetary easing in this context will have a limited, delayed impact on spending recovery,” he said.

The central bank revised its GDP growth outlook to 2.4 percent for this year, a decrease of 0.1 percentage point from the previous forecast.

The revision is warranted by the fading impact of a one-off, stronger-than-expected growth in the first quarter. However, the underlying growth trend remains unchanged and is still well above the country's potential growth rate of 2 percent.

Thursday's decision was wildely expected, according to Park Seok-gil, executive director of JPMorgan Chase Bank Asia Economic Research.

“Since the April meeting, we expected that the first rate cut will occur in the fourth quarter with signals for a rate cut in the third quarter,” he said.

“Thursday's signal was not strong enough to provide a clear view on near-term actions, but the central bank is moving closer to a rate cut in the October-December period. We now see a 25 basis point rate cut as more likely in November rather than October. The exact timing remains uncertain,” he added.

However, hawkish messages linger.

“The rate freeze decision was unanimous without the minority vote we expected. This highlights even the most dovish member remains cautious over household debt buildup. Further strengthening the hawkish tone is Rhee's strong opposition to a rapid easing cycle, citing the risk of a rebound in home prices,” he said.

Park Chong-hoon, a director at Standard Chartered Bank Korea, said the central bank is preparing for the much-anticipated easing, as evidenced by the number of dovish committee members increasing to four, double from two.

“Two more members are open to easing, a significant development. This coupled with tempered inflation and downgraded economic growth forecast are all steps for an easing in the months to come.”