By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) – South Korea’s central bank unexpectedly left its key interest rate unchanged on Thursday, weighing the effect of its successive cuts last year, supporting the won, which has recently weakened to a 15-year low against the U.S. dollar in weeks.
The Bank of Korea kept its benchmark interest rate at 3.00% in its monetary policy review, which was expected by only seven of 34 economists polled by Reuters. The remaining 27 expected the bank to cut the rate by 25 basis points.
The decision is the first since impeached President Yoon Suk Yeol’s attempt to impose a state of emergency in early December plunged Asia’s fourth-largest economy into its biggest political crisis in decades. The turmoil prompted the government to cut its economic growth forecast for 2025 to 1.8% from 2.2%.
The crash of Jeju Air flight 7C2216, which killed 179 people in the deadliest air crash on South Korean soil, also weighed on the economy.
On top of that, Won’s decline was a major concern of policymakers. In the last three months of 2024, the currency weakened 10.6% against the dollar, which is the biggest quarterly decline since the third quarter of 2008.
Local currency traders said South Korea relied on equalization operations in the onshore won-dollar market, as well as currency hedging operations by the National Pension Service, to support the won.
“(Thursday’s interest rate decision) would be due to (the BOK’s) greater focus on economic and financial stability concerns until political uncertainty subsides. Rather than in January, we expect the BOK to cut the benchmark rate again at its meeting in February, after revising its economic outlook.” said Park Jeong-Woo, an analyst at Nomura Securities who was one of seven analysts who correctly predicted the rate decision.
Analysts now see the central bank planning a more gradual pace of interest rate cuts in the coming year.
Median forecasts in the survey showed one interest rate cut of 25 basis points this quarter and cuts of the same degree in the second and third quarters, bringing the rate to 2.25%.
Market focus now shifts to Governor Rhee Chang-yong’s press conference at 02:10 GMT, where the names of anyone opposed to the policy decision could be announced. Dissenting voices usually lead to policy changes in the following months.
