SEOUL—South Korea's central bank, the Bank of Korea (BOK), is likely to reduce its key interest rate in November, opting to wait out October's decision period in anticipation of more definitive signs of slowing household debt and moderating inflation, according to financial analysts.

According to Yonhap News Agency, the BOK, having left the interest rate steady at 3.5 percent last month—the highest in about 16 years—faces a balancing act due to rising household debts. This concern comes despite a backdrop of easing inflation which would typically open a window for lowering rates. The central bank has maintained this rate through 13 consecutive policy meetings after implementing seven consecutive rate hikes from April 2022 to January 2023.

Recent data suggest a complex economic scenario where, despite cooling inflation, surging household debts, particularly in the housing sector, pose a significant constraint. In August, banks' household loans in South Korea saw a record increase, led by a surge in mortgages, marking the most substantial monthly rise in over three years. This uptick in borrowing underscores the broader challenges facing the BOK as it navigates toward potential policy easing.

Experts like Hwang Seung-taek from Hana Securities and Cho Young-moo from the LG Economic Research Institute suggest that a rate cut could be imminent by November, contingent on the central bank's assessment of economic improvements in the latter half of the year and a stabilization in home prices and debt levels. The BOK has indicated that any decisions regarding rate adjustments will be heavily influenced by the need to maintain financial stability amidst these volatile economic indicators.