Seoul: South Korea's central bank kept its benchmark interest rate frozen Thursday following its two successive rate cuts amid concerns about the weak local currency and uncertainties stemming from the new Donald Trump administration. The monetary policy committee of the Bank of Korea (BOK) held its key rate unchanged at 3 percent during a rate-setting meeting in Seoul.
According to Yonhap News Agency, the decision came on the heels of two rate cuts in the prior meetings in October and November, which marked the first back-to-back interest rate cuts since February 2009 when the country was reeling from the aftermath of the global financial crisis. Thursday's decision highlights the BOK's focus on ensuring financial stability, as the local currency recently weakened sharply to well below 1,450 won per dollar, a level unseen since the global financial crisis.
The won's weakening came as President Yoon Suk Yeol's shocking martial law imposition caused political turmoil, while U.S. President-elect Trump warned of high tariffs. The Federal Reserve has also hinted at a cautious approach to rate cuts this year, given a series of data showing a resilient economy. The local currency opened at 1,455 won against the greenback Thursday, up 6.2 won from the previous session.
Analysts had been sharply divided on the central bank's policy direction amid calls for the need to prop up weak growth momentum through monetary easing. The country is facing mounting downside risks, including slowing exports, weak domestic demand, and potential U.S. policy changes. The BOK expected the economy to grow 1.9 percent in 2025, which is below the potential growth rate of 2 percent.
Earlier this month, the finance ministry presented a bleaker outlook of a 1.8 percent expansion in 2025, given heightened uncertainties from the political chaos and external factors.