South Korea’s Central Bank Holds Rate Steady in Surprise Move Amid Political Uncertainty
The Bank of Korea (BOK) held its benchmark policy rate at 3% on Thursday, defying market expectations of a 25-basis-points cut. The decision was made in the wake of political turmoil in the country, including the arrest of impeached President Yoon Suk Yeol, a first for a sitting South Korean president.
The BOK cited intensifying downside risks to economic growth and increased volatility in exchange rates as reasons for holding the rate steady. It also noted that household debt had slowed down, while inflation had stabilized. However, the bank emphasized that uncertainty remains high due to changing domestic politics and economic policies in major countries.
Economists had forecast a rate cut, but the BOK chose to assess changes in domestic and external economic conditions before making any further decisions. The decision came as South Korea’s economy struggled to gain momentum, with some exports doing well but others not performing as well.
The country’s Kospi index rose 1.25% after the decision, while the small-cap Kosdaq index increased 1.69%. The South Korean won strengthened 0.3% to trade at 1,450.27.
Analysts said the decision was “very tricky” for the BOK, balancing the need to support the economy with the risks of a cut. The central bank warned that South Korea is “highly likely” to miss its full-year GDP growth forecasts of 2.2% for 2024 and 1.9% for 2025, citing deteriorating consumer sentiment and slowing export growth. The BOK also noted that construction investment remained sluggish and that uncertainties remain along the future path of economic growth due to changes in domestic politics, economic stimulus measures, and policies of the incoming Trump administration.
