Financial institution of Korea Gov. Rhee Chang-yong bangs the gavel to open a Financial Coverage Committee assembly on the central financial institution in Seoul, Thursday. Joint Press Corps
Korea’s central financial institution once more left its benchmark rate of interest unchanged Thursday as a weakened received and rising inflation issues restricted room for additional easing.
In a extensively anticipated choice, the Financial Coverage Board of the Financial institution of Korea (BOK) held the important thing fee at 2.5 p.c at its rate-setting assembly in Seoul, marking the fifth consecutive on-hold choice since July.
“Inflation is predicted to steadily decline, although the elevated change fee stays a supply of upside threat. Relating to monetary stability, dangers nonetheless stay associated to housing costs in Seoul and its surrounding areas, to family debt and to the heightened change fee volatility,” the BOK stated in a launched assertion.
Thursday’s fee freeze choice was unanimous, whereas one of many board’s six members voiced the necessity to hold open the potential for additional fee reductions within the subsequent three months, BOK Gov. Rhee Chang-yong instructed a press briefing.
The BOK dropped references to a potential fee minimize from its coverage assertion for the primary time because it entered an easing cycle in October 2024.
“Past the three-month time-frame, uncertainty stays too excessive to make any definitive name,” Rhee stated. “Whereas there are some upside elements for financial progress, inflation stays delicate to the change fee and uncertainty over the route of U.S. financial coverage is elevated. We’ll decide the coverage path primarily based on incoming information.”
The most recent pause got here amid a weakened received and heightened volatility within the overseas change market.
The received sank to the mid-1,480 received per U.S. greenback vary late final month, nearing the bottom stage in additional than 16 years, however authorities’ robust intervention and a collection of coverage measures had pushed it again to the 1,420 received stage.
The forex, nevertheless, has reversed course since Dec. 30 and fallen in opposition to the dollar for 10 consecutive buying and selling classes by way of Wednesday to be quoted at 1,477.5 received, marking its longest shedding streak since 2008, when the nation was hit by the worldwide monetary disaster.
Below the circumstances, a fee minimize may immediate additional capital outflows, thereby exacerbating downward stress on the native forex, specialists say.
“The Korean received is markedly undervalued relative to the nation’s financial fundamentals and its present stage can’t be justified by fundamentals alone,” Rhee stated.
About three-quarters of the forex weak spot was as a consequence of a robust U.S. greenback, a weak Japanese yen and geopolitical dangers, whereas the remaining quarter stemmed from home elements, together with a pointy rise in abroad securities investments by home traders, the central financial institution governor stated.
“Provided that South Korea holds substantial exterior property, it’s tough to say that the change fee alone may set off a monetary disaster, although the forex stage can have an effect on inflation and have an effect on importers and odd households, creating home strains,” Rhee added.
Client costs rose 2.3 p.c from a yr earlier in December, remaining above the financial institution’s 2 p.c goal for the fourth consecutive month.
Import costs rose for the sixth consecutive month final month regardless of a decline in international oil costs, marking the primary such streak since 2021.
At midday on Thursday, the forex was buying and selling at 1,471.1 received, up 6.4 received from the earlier session, after U.S. Treasury Secretary Scott Bessent stated throughout a gathering with Seoul’s Finance Minister Koo Yun-cheol this week that the received’s latest weak spot was not in keeping with South Korea’s “robust” financial fundamentals and extreme volatility within the overseas change market is undesirable.
The BOK additionally appeared to have opted to take extra time to evaluate the influence of the federal government’s tighter laws on house purchases in Seoul and the broader metropolitan space, in addition to stricter caps on family lending.
The successive measures to chill the overheated housing market have slowed the rise in house costs and the expansion of family loans, however there have been indicators of a renewed uptick in housing costs.
In line with the Korea Actual Property Board, the common worth of residences in Seoul rose 0.18 p.c within the first week of this month, extending its upward development for a forty eighth consecutive week since February 2025.
Authorities information additionally confirmed that house transactions fell sharply in November following the federal government’s Oct. 15 laws, however residence transactions in Seoul in December have already surpassed November’s stage, though the reporting deadline isn’t till the top of January.
Native analysts earlier famous that the central financial institution may afford to position larger emphasis on stabilizing the overseas change market because the financial system stays on a restoration path.
The BOK expects the native financial system to develop 1.8 p.c this yr, up from round 1 p.c final yr, on the again of robust exports and a restoration in non-public consumption.
