The Bank of Korea kept its benchmark interest rate unchanged for the 12th consecutive time Thursday, while hinting at a future rate cut if the current path of disinflation continues.

The central bank has maintained the rate at 3.5 percent for over one and half years, since the rate-setting decision made in January 2023. This is the longest rate freeze ever, surpassing the previous 17-month record in 2016-2017.

All six members of the monetary policy board, excluding BOK Gov. Rhee Chang-yong, agreed on the rate freeze, and two of its members suggested leaving room for a rate cut to happen within the next three months, Rhee said at a press conference held at the central bank’s headquarters in Seoul.

“With the growing conviction that the inflation will come down to the target level, a rate cut could be considered at the right time in the future,” he said.

Inflation has been losing steam in South Korea in recent months. In June, consumer prices rose 2.4 percent on-year, marking the lowest growth in 11 months. The figure has been on a downward trajectory, coming down from 2.7 percent in May and 2.9 percent in April, nearing the 2 percent target.

“But it is yet to prejudge when the cut will happen,” Rhee said. “The inflation slowdown must be further confirmed, as the uncertainty of the path of price growth has not been fully resolved.”

The weak value of the Korean won against the US dollar also remains a threat. The average value of the won against the dollar in the second quarter was 1,371.24 won, marking a value loss of 42 won on-quarter. This was the weakest quarterly figure seen since the first three months of 2009, when the economy was under the influence of the global financial crisis.

Another concern for the BOK is household debt, which began rising again on the back of increases in house prices and transaction volume.

According to the data released by the financial authorities Wednesday, the outstanding value of household debt at local banks rose by 6 trillion won ($4.3 billion) in June from a month earlier, led by the 6.3-trillion-won surge of housing loans which hit their sharpest growth in 10 months.

“The real estate prices in the greater Seoul area were to increase gradually, but the surge has been sharper than anticipated,” Rhee said, highlighting the need for close monitoring.

Experts agree the price fluctuation in the real estate market in the coming months will impact the BOK’s rate decision.

“Real estate prices in the greater Seoul area and the soaring household debt will be the major variables that affect the timing of the rate cut," analyst Park Sang-hyun from Hi Investment & Securities said. “The BOK needs at least two to three months to confirm stability.”

Analyst Lim Jae-kyun from KB Securities weighed a rate cut could possibly happen in its November 28 meeting considering the US' political dynamics.

“When discussing variables in the forex market, (Rhee) mentioned political uncertainties along with the Korea-US rate gap. The BOK will continue to remain wary against a rate cut in October, considering the US presidential election is slated for November,” Lim assessed.

“Also, with the extension of the operation hours and the participation of registered foreign institutions from July, it will be more difficult for the forex authorities to intervene in the market in the event that volatility escalates," Lim said.