BOK Maintains Key Interest Rate Amid Currency Weakness and Trump Administration Uncertainties

Seoul, Jan 16 (NationPress) In light of persistent challenges leading to diminished growth momentum, South Korea's central bank decided to keep its benchmark interest rate steady on Thursday, amidst worries over the weak local currency and uncertainties related to the new Donald Trump administration.

The monetary policy committee of the Bank of Korea (BOK) opted to maintain its key rate at 3 percent during a rate-setting meeting held in Seoul, as reported by Yonhap news agency.

This decision follows two prior rate cuts in October and November, marking the first consecutive reductions in interest rates since February 2009, a period when the country was grappling with the aftermath of the global financial crisis.

In a statement, the central bank explained, “Given the increased economic outlook uncertainties and foreign exchange market fluctuations due to the evolving domestic political landscape and economic policies in major nations, the board deemed it fitting to uphold the current base rate and to further evaluate any potential adjustments based on domestic and external conditions.”

This decision underscores the BOK's commitment to maintaining financial stability, particularly as the local currency experienced a sharp decline, dropping to levels below 1,450 won per dollar, a threshold not witnessed since the financial crisis.

The depreciation of the won coincided with President Yoon Suk Yeol's unexpected declaration of martial law, which triggered political unrest, while U.S. President-elect Trump issued warnings regarding high tariffs.

On Thursday, the local currency opened at 1,455 won against the U.S. dollar, reflecting an increase of 6.2 won from the previous trading session.

The Federal Reserve has also indicated a cautious stance on rate cuts for this year, reducing its projection for the number of rate cuts in 2025 from four to two, which adversely affected Asian currencies.

Experts warn that a widening gap between the key rates of South Korea and the United States could exacerbate the depreciation of the won and result in a capital outflow from the local market.

This decision maintains a difference of up to 1.5 percentage points between the two countries’ key rates.

The weaker won could also induce inflationary pressures.

BOK Governor Rhee Chang-yong has indicated that a 1,430 won level may elevate consumer prices by 0.05 percentage points.

Analysts are sharply divided regarding the central bank's policy trajectory, with some advocating for monetary easing to counteract the sluggish growth momentum.

South Korea is encountering significant downside risks, including declining exports, weak domestic demand, and potential shifts in U.S. policy.

The BOK anticipates the economy will grow by 1.9 percent in 2025, which falls short of the potential growth rate of 2 percent.