---
ticker: "KREARPR"
title: "South Korea Ex-Ante Real Policy Rate (Base Rate)"
unit: "%"
frequency: "Weekly"
source: "Fisher (1930); Stock and Watson (2007)"
release: "Updated Weekly"
category: "Real & Policy Rates"
country: "KR"
language: "en"
canonical: "https://kred.dev/en/series/KREARPR"
license: "https://creativecommons.org/licenses/by-nc-nd/4.0/"
latest_value: 0.27
latest_date: "2026-08-31"
first_date: "2001-08-31"
observations_total: 301
observations_shown: 120
---

# South Korea Ex-Ante Real Policy Rate (Base Rate)

## Overview

The base rate less expected inflation, showing how tight or easy policy is expected to be.

## Key Figures

|  | Value | Date |
|---|---|---|
| Latest | 0.27 | 2026-08-31 |
| Change from previous | -0.11 | 2026-07-31 |
| Change over one year | -0.66 | 2025-08-31 |
| Highest on record | 2.49 | 2007-09-30 |
| Lowest on record | -1.95 | 2009-02-28 |
| Period covered | 2001-08-31 – 2026-08-31 |  |
| Observations | 301 |  |

## Recent observations

| Date | Value | Change |
|---|---|---|
| 2016-09-30 | -0.53 | -0.05 |
| 2016-10-31 | -0.45 | +0.08 |
| 2016-11-30 | -0.35 | +0.10 |
| 2016-12-31 | -0.30 | +0.05 |
| 2017-01-31 | -0.39 | -0.09 |
| 2017-02-28 | -0.38 | +0.01 |
| 2017-03-31 | -0.31 | +0.07 |
| 2017-04-30 | -0.25 | +0.06 |
| 2017-05-31 | -0.19 | +0.06 |
| 2017-06-30 | -0.16 | +0.02 |
| 2017-07-31 | -0.14 | +0.02 |
| 2017-08-31 | -0.14 | +0.01 |
| 2017-09-30 | -0.11 | +0.03 |
| 2017-10-31 | -0.15 | -0.04 |
| 2017-11-30 | 0.21 | +0.36 |
| 2017-12-31 | 0.26 | +0.05 |
| 2018-01-31 | 0.38 | +0.12 |
| 2018-02-28 | 0.34 | -0.04 |
| 2018-03-31 | 0.26 | -0.09 |
| 2018-04-30 | 0.21 | -0.05 |
| 2018-05-31 | 0.23 | +0.03 |
| 2018-06-30 | 0.32 | +0.08 |
| 2018-07-31 | 0.43 | +0.12 |
| 2018-08-31 | 0.44 | 0.00 |
| 2018-09-30 | 0.45 | +0.02 |
| 2018-10-31 | 0.47 | +0.02 |
| 2018-11-30 | 0.68 | +0.21 |
| 2018-12-31 | 0.74 | +0.06 |
| 2019-01-31 | 0.78 | +0.04 |
| 2019-02-28 | 0.81 | +0.03 |
| 2019-03-31 | 0.98 | +0.17 |
| 2019-04-30 | 1.09 | +0.11 |
| 2019-05-31 | 1.14 | +0.05 |
| 2019-06-30 | 1.11 | -0.03 |
| 2019-07-31 | 0.78 | -0.33 |
| 2019-08-31 | 0.84 | +0.05 |
| 2019-09-30 | 1.02 | +0.18 |
| 2019-10-31 | 0.77 | -0.25 |
| 2019-11-30 | 0.81 | +0.04 |
| 2019-12-31 | 0.79 | -0.03 |
| 2020-01-31 | 0.80 | +0.02 |
| 2020-02-29 | 0.96 | +0.16 |
| 2020-03-31 | 0.59 | -0.37 |
| 2020-04-30 | 0.66 | +0.07 |
| 2020-05-31 | 0.37 | -0.30 |
| 2020-06-30 | 0.28 | -0.09 |
| 2020-07-31 | 0.27 | -0.02 |
| 2020-08-31 | 0.21 | -0.05 |
| 2020-09-30 | 0.13 | -0.08 |
| 2020-10-31 | 0.53 | +0.40 |
| 2020-11-30 | 0.10 | -0.43 |
| 2020-12-31 | 0.01 | -0.09 |
| 2021-01-31 | -0.06 | -0.07 |
| 2021-02-28 | -0.09 | -0.04 |
| 2021-03-31 | -0.38 | -0.29 |
| 2021-04-30 | -0.52 | -0.13 |
| 2021-05-31 | -0.54 | -0.02 |
| 2021-06-30 | -0.54 | 0.00 |
| 2021-07-31 | -0.64 | -0.10 |
| 2021-08-31 | -0.48 | +0.16 |
| 2021-09-30 | -0.62 | -0.14 |
| 2021-10-31 | -1.14 | -0.52 |
| 2021-11-30 | -0.81 | +0.33 |
| 2021-12-31 | -1.01 | -0.20 |
| 2022-01-31 | -1.02 | -0.01 |
| 2022-02-28 | -1.23 | -0.21 |
| 2022-03-31 | -1.31 | -0.09 |
| 2022-04-30 | -1.27 | +0.05 |
| 2022-05-31 | -1.36 | -0.09 |
| 2022-06-30 | -1.83 | -0.47 |
| 2022-07-31 | -1.64 | +0.19 |
| 2022-08-31 | -1.36 | +0.28 |
| 2022-09-30 | -1.37 | -0.01 |
| 2022-10-31 | -1.00 | +0.37 |
| 2022-11-30 | -0.75 | +0.25 |
| 2022-12-31 | -0.63 | +0.13 |
| 2023-01-31 | -0.38 | +0.25 |
| 2023-02-28 | -0.34 | +0.03 |
| 2023-03-31 | -0.40 | -0.05 |
| 2023-04-30 | -0.34 | +0.06 |
| 2023-05-31 | -0.18 | +0.16 |
| 2023-06-30 | 0.13 | +0.31 |
| 2023-07-31 | 0.30 | +0.17 |
| 2023-08-31 | 0.38 | +0.09 |
| 2023-09-30 | 0.42 | +0.04 |
| 2023-10-31 | 0.49 | +0.06 |
| 2023-11-30 | 0.66 | +0.17 |
| 2023-12-31 | 0.82 | +0.16 |
| 2024-01-31 | 1.01 | +0.19 |
| 2024-02-29 | 1.07 | +0.06 |
| 2024-03-31 | 1.12 | +0.05 |
| 2024-04-30 | 1.22 | +0.10 |
| 2024-05-31 | 1.28 | +0.06 |
| 2024-06-30 | 1.39 | +0.10 |
| 2024-07-31 | 1.44 | +0.05 |
| 2024-08-31 | 1.51 | +0.07 |
| 2024-09-30 | 1.60 | +0.09 |
| 2024-10-31 | 1.42 | -0.18 |
| 2024-11-30 | 1.18 | -0.24 |
| 2024-12-31 | 1.17 | -0.02 |
| 2025-01-31 | 1.17 | 0.00 |
| 2025-02-28 | 0.99 | -0.18 |
| 2025-03-31 | 0.94 | -0.05 |
| 2025-04-30 | 0.86 | -0.09 |
| 2025-05-31 | 0.68 | -0.17 |
| 2025-06-30 | 0.75 | +0.07 |
| 2025-07-31 | 0.77 | +0.02 |
| 2025-08-31 | 0.93 | +0.16 |
| 2025-09-30 | 0.76 | -0.17 |
| 2025-10-31 | 0.63 | -0.13 |
| 2025-11-30 | 0.66 | +0.03 |
| 2025-12-31 | 0.64 | -0.02 |
| 2026-01-31 | 0.61 | -0.04 |
| 2026-02-28 | 0.51 | -0.10 |
| 2026-03-31 | 0.48 | -0.03 |
| 2026-04-30 | 0.39 | -0.09 |
| 2026-05-31 | 0.28 | -0.11 |
| 2026-06-30 | 0.24 | -0.04 |
| 2026-07-31 | 0.38 | +0.13 |
| 2026-08-31 | 0.27 | -0.11 |

## Definition

The ex-ante real policy rate is the Bank of Korea's base rate (the 7-day repurchase rate) minus 1-year expected inflation, representing the expected real purchasing power of the policy rate at the time of the rate decision. As a forward-looking measure, it captures the real monetary policy stance as perceived by economic agents when they make consumption, investment, and saving decisions.

The conceptual foundation lies in the Fisher (1930) equation:

$$r^{real} = i - \pi^e$$

where $i$ is the nominal policy rate and $\pi^e$ is the expected rate of inflation. Since the policy rate is an overnight rate with no meaningful term premium, the Fisher equation can be applied directly without the need for affine term structure decomposition, unlike longer-maturity real rates that require separation of risk premiums.

The choice of the 1-year expected inflation as the deflator is economically motivated, because the BOK's Monetary Policy Committee explicitly targets the 1–2 year inflation outlook in its forward-looking policy framework. The ex-ante real policy rate is therefore the variable most directly relevant to assessing whether the current policy setting is consistent with the central bank's inflation and output objectives.

Two core CPI deflators are provided. The primary (default) uses the DB index (excluding food and energy), aligned with the international standard adopted by the Cleveland Fed, ECB, and OECD. The secondary (hidden) uses the QB index (excluding agricultural products and petroleum), the traditional Korean measure. Both share the same policy rate and differ only in the expected inflation component.

A higher ex-ante real policy rate implies a tighter monetary policy stance, while a lower or negative value implies an easier one.

## Methodology

Computed via the Fisher (1930) equation:

$$r^{real,\text{ex-ante}}_t = i^{base}_t - \pi^{short}_t$$

where $i^{base}_t$ is the Bank of Korea base rate (7-day repo rate) and $\pi^{short}_t$ is the 1-year expected inflation rate. Since the policy rate is an overnight rate with no term premium, ACM decomposition is unnecessary and the Fisher equation is applied directly.

$\pi^{short}_t$ (1-year expected inflation) is run separately on each core CPI measure and estimated in two stages.

**(1) Trend inflation extraction.** Trend inflation is extracted from headline CPI year-on-year using the UCSV model of Stock and Watson (2007).

$$\begin{aligned} \pi_t &= \tau_t + \exp(h_t / 2)\,\varepsilon_t \\ \tau_t &= \tau_{t-1} + \exp(g_t / 2)\,\eta_t \end{aligned}$$

Stochastic volatility applies to both observation and trend innovations, and the precision-based Gibbs sampler of Chan and Jeliazkov (2009) draws 2,000 burn-in and 5,000 posterior samples, cycling 5 blocks (trend states, observation SV, trend SV, mixture indicators, innovation variances) via $O(T)$ tridiagonal Cholesky.

**(2) Short-term expectation estimation.** Short-term expectations combine the UCSV trend with the BOK Consumer Survey via expanding-window OLS.

$$\pi^{realized}_{t+12} - \tau_t = \alpha + \beta(\pi^{survey}_t - \tau_t) + \varepsilon_t$$

$$\pi^{short}_t = \alpha + \beta \cdot \pi^{survey}_t + (1 - \beta) \cdot \tau_t$$

The Monetary Policy Committee sets rates based on the 1–2 year inflation outlook, making the 1-year expected inflation the economically appropriate deflator. The DB-based result is the default, and the QB-based result is the hidden alternative.

## Applications in Economics

The ex-ante real policy rate is the single most important indicator for assessing the intended stance of monetary policy. In the Taylor (1993) rule framework, the optimal policy rate responds to the inflation gap ($\pi - \pi^*$) and the output gap ($y - y^*$), and comparing the implied ex-ante real rate with estimates of the natural rate of interest ($r^*$) is central to judging whether policy is contractionary, neutral, or accommodative.

Woodford (2003) establishes the theoretical foundation in the New Keynesian framework. The welfare-relevant monetary policy stance is determined not by the nominal rate per se, but by the deviation of the real interest rate from the natural rate. When $r^{ex\text{-}ante} > r^*$, the intertemporal substitution effect reduces current demand relative to potential, creating downward pressure on inflation. When $r^{ex\text{-}ante} < r^*$, policy is stimulative.

The distinction between the ex-ante and ex-post real policy rate (KREPRPR) is substantively important. The ex-ante rate reflects agents' expectations at the time of decision-making and is the theoretically appropriate variable in New Keynesian models and Taylor-type policy rules. The ex-post rate, computed using realized inflation, measures the actual real return experienced after the fact and can diverge significantly from the ex-ante rate during periods of inflation surprises, such as the energy price shocks of 2022–2023.

Empirically, estimating $r^*$ is challenging because it is unobservable and time-varying. For the U.S., Laubach and Williams (2003) estimate $r^*$ using a Kalman filter embedded in a small structural model. For Korea, similar exercises (incorporating Korea-specific factors such as demographic aging, potential GDP growth deceleration, and the high household debt burden) suggest a declining natural rate trajectory, implying that a given nominal policy rate is more restrictive today than it would have been a decade ago.

The ex-ante real policy rate is also informative for assessing the monetary policy transmission mechanism. In economies with well-anchored inflation expectations, changes in the nominal policy rate translate approximately one-for-one into changes in the real rate, giving the central bank effective control over real economic conditions. When expectations become unanchored (as can occur during stagflationary episodes), the link between nominal and real rates weakens, complicating monetary policy implementation (Blanchard 2023).

International comparisons of ex-ante real policy rates provide insight into relative monetary policy stances across countries. For instance, comparing the Korean ex-ante real rate with those of the U.S., Japan, and other Asian economies helps assess whether Korean monetary policy is relatively tight or loose by global standards, with implications for capital flows, exchange rates, and competitiveness.

## Applications in Financial Markets

The ex-ante real policy rate anchors the short end of the real yield curve and has immediate implications for money market instruments, short-duration bonds, and floating-rate products.

For fixed income investors, the ex-ante real policy rate determines the real carry on short-term instruments. When the real rate is positive, cash and money market funds generate a positive real return, reducing the opportunity cost of maintaining low-duration positions. When the real rate is negative, investors are effectively penalized for holding short-duration assets, creating incentives to extend duration or take on credit risk in search of positive real returns, a dynamic that Rajan (2005) warned could lead to excessive risk-taking.

The spread between the ex-ante and ex-post real policy rates (KREARPR versus KREPRPR) is a direct, real-time measure of the degree to which inflation expectations are anchored to realized price dynamics. A consistently narrow spread indicates well-anchored expectations, while a widening spread signals potential dis-anchoring, an early warning for bond portfolio managers who may need to adjust inflation hedging strategies.

In the credit markets, the real policy rate affects corporate borrowing costs and hence credit fundamentals. When real rates are high, debt servicing costs for leveraged corporations increase in real terms, elevating default risk. Monitoring the ex-ante real rate trajectory is therefore relevant for credit analysts assessing the sustainability of Korean corporate debt burdens, particularly in rate-sensitive sectors such as real estate and construction.

## Statistical Tests

This is a model-derived series, the output of the ex-ante Fisher decomposition with survey-anchored expected inflation, so the unit-root reading describes the fitted rate rather than a directly observed price, and the serial-correlation and break diagnostics run on the first difference. The series is tested over its own span from 2001-08-31 to 2026-05-31.

The ex-ante real policy rate gives an ambiguous reading on the level, since the Dickey and Fuller (1979) and Phillips and Perron (1988) tests reject a unit root at p = 0.1334 and p = 0.1467 while the Kwiatkowski et al. (1992) test also rejects stationarity, so no clean order is assigned. On the first difference the Ljung and Box (1978) portmanteau rejects white noise at lags 13 and 26, Q = 45.71 and Q = 59.82 at p = 0.000 and p = 0.000. The Bai and Perron (1998, 2003) procedure finds no break in the mean, a reading consistent with the parameter-instability inference of Andrews (1993) on the differenced object (Perron 1989).

This is a monthly model output with no posited low-integer seasonal component, so the seasonal machinery of Hylleberg et al. (1990) and Canova and Hansen (1995) carries no meaningful object and is not run (Beaulieu and Miron 1992; Ghysels and Osborn 2001).

## Frequently Asked Questions

### What is the difference between the ex-ante and ex-post real policy rate?

The ex-ante rate subtracts expected inflation over the coming year from the policy rate; the ex-post rate subtracts realised inflation. The first is the real policy stance as perceived when the decision was taken, the second is the outcome confirmed afterwards.

### Which real policy rate is used to judge the policy stance?

The ex-ante rate, because consumption, investment and saving decisions are made against expectations held at the time rather than against inflation that has yet to occur.

### When do the ex-ante and ex-post real policy rates diverge most?

When inflation departs from expectations, which is precisely when the distinction is most useful. In a period of unexpected inflation the ex-post rate records far below the ex-ante rate borrowers had perceived.