South Korea’s Economic Outlook Amid Political Turmoil

SEOUL (Reuters) – South Korea’s central bank governor stated that the most crucial factor affecting the health of Asia’s fourth-largest economy in the coming months is the stabilization of recent political turmoil.

Governor Rhee Chang-yong remarked during a news conference that the primary variable had shifted from U.S. monetary and trade policy to the stability of the political process.

> “That is why a normalization of the political process is way more important than lowering interest rates a month earlier or later,” Rhee said. This statement was made after the Bank of Korea chose to maintain policy interest rates at 3.00% on Thursday, the first decision since President Yoon Suk Yeol’s controversial attempt to impose martial law in early December, which caused significant political unrest.

As a result of this turmoil, the government revised its 2025 economic growth forecast downwards from 2.2% to 1.8%. Rhee noted that the decision to keep rates steady also aimed to support the weakening won, influenced in part by political factors.

The arrest of the impeached President Yoon, which occurred the previous day, provided some support to the won, according to Rhee. Yoon’s arrest was the first for a sitting president and occurred without major violence, despite fears of unrest as over 3,000 police officers were deployed to his residence during the arrest.

Rhee commented on the currency market, stating, “The dollar-won exchange rate fell today, thanks to the U.S. inflation report, but what happened yesterday also affected it in a comprehensive manner.” Following news of Yoon’s arrest, the won temporarily strengthened, continuing to rise on Thursday to reach its highest level since January 8 at 1,449.6 per dollar.

While Yoon’s arrest may signal an end to one chapter of South Korea’s political crisis, it is not expected to resolve the situation entirely. His lawyer indicated that Yoon would not participate in a second day of questioning, continuing to challenge the investigation into whether he committed insurrection during his martial law attempt as he seeks to maintain his political position.