Seoul, Jan 15 (NationPress) The central bank of South Korea has opted to maintain its benchmark interest rate once more on Thursday due to a weakened won and mounting inflation concerns that limit the potential for further easing.

In a decision that was widely anticipated, the Monetary Policy Board of the Bank of Korea (BOK) decided to keep the key rate at 2.5 percent during its rate-setting meeting held in Seoul, marking the fifth consecutive month that the rate has not changed since July, according to reports from the Yonhap news agency.

"While inflation is projected to gradually decline, the high exchange rate continues to pose an upside risk. Financial stability risks remain linked to housing prices in Seoul and surrounding areas, as well as household debt and increased exchange rate volatility," the BOK stated in its release.

The decision to freeze rates was unanimous, although one of the six board members suggested that the possibility of further rate cuts should remain open in the upcoming three months, as BOK Gov. Rhee Chang-yong mentioned in a press briefing.

For the first time since entering an easing cycle in October 2024, the BOK has removed references to potential rate cuts from its policy statement.

"Beyond the next three months, there remains too much uncertainty to make any definitive decisions," Rhee remarked. "Although some factors may support economic growth, inflation is still sensitive to the exchange rate, and uncertainty regarding U.S. monetary policy is significant. We will base our policy direction on the incoming data."

This latest pause comes as the won has weakened and seen increased volatility in the foreign exchange market.

The won plummeted to the mid-1,480 won per U.S. dollar range late last month, nearing its lowest level in over 16 years. However, strong interventions by authorities and a series of policy measures helped stabilize it back to the 1,420 won level.

Unfortunately, the currency has since reversed course since December 30 and has depreciated against the dollar for 10 consecutive trading sessions, reaching 1,477.5 won, marking the longest losing streak since 2008 during the global financial crisis.

Experts warn that a rate cut could lead to further capital outflows, intensifying downward pressure on the local currency.

"The Korean won is significantly undervalued in relation to the country's economic fundamentals, and its current level cannot be justified solely by those fundamentals," Rhee stated.

Approximately three-quarters of the currency's weakness is attributed to a strong U.S. dollar, a weak Japanese yen, and geopolitical risks, while the remaining quarter is due to domestic factors, including a surge in overseas securities investments by local investors, according to the central bank governor.

"Considering South Korea's significant external assets, it's difficult to claim that the exchange rate alone could incite a financial crisis, although it can influence inflation and impact importers and everyday households, leading to domestic pressures," Rhee added.

In December, consumer prices rose 2.3 percent compared to a year earlier, remaining above the bank's 2 percent target for the fourth consecutive month.

Import prices increased for the sixth straight month last month, even amid declining global oil prices, representing the first such streak since 2021.

The BOK anticipates the local economy will grow 1.8 percent this year, a rise from around 1 percent last year, driven by strong exports and a rebound in private consumption.