SEOUL (Reuters) – South Korea’s central bank governor said on Thursday that the most important factor that will determine the health of Asia’s fourth-largest economy in the next few months is whether recent political turmoil stabilizes.
“Before, the biggest variable was US monetary and trade policy. Now, more than that, the biggest factor determining the economy is whether the political process will be stable, as we all want, in the next few months,” Bank of Korea Governor Rhee Chang- yong said at a press conference.
“That’s why normalizing the policy process is much more important than cutting interest rates a month earlier or later,” Rhee said, speaking after the Bank of Korea unexpectedly kept interest rates at 3.00 percent on Thursday.
The political decision is the first since President Yoon Suk Yeol tried to impose a state of emergency in early December, sparking the country’s biggest political crisis in decades. The turmoil prompted the government to cut its economic growth forecast for 2025 to 1.8% from 2.2%.
Rhee also said the decision not to cut rates reflected the need to support the won “which is weakening partly due to political reasons”.
The central bank governor said, however, that Wednesday’s political event had lent support to Won, apparently referring to the arrest of impeached President Yoon.
Yoon’s arrest – the first of a sitting president – was relatively orderly amid fears that violence could flare up as more than 3,000 police officers marched on his residence. A previous attempt to arrest him on January 3 failed after an hours-long standoff between investigators and Yoon’s personal security.
“The won-dollar rate fell today, thanks to the US inflation report, but what happened yesterday also had an impact in a comprehensive way,” Rhee said, when asked about the won’s movement in relation to domestic political turmoil.
On Wednesday, the won briefly rallied after news of Yoon’s arrest emerged.
The currency continued to rise on Thursday and reached its strongest level since January 8 at 1449.6 per dollar.
Yoon’s arrest may have ended one chapter of South Korea’s political crisis, but it is unlikely to mark the end.
Yoon did not intend to take part in a second day of questioning on Thursday, his lawyer said, further curtailing the criminal investigation into whether he committed mutiny with his attempt to impose martial law as he fights for his political survival.
