Bank of Korea Holds Interest Rates Amid Political Uncertainty

Investing.com — South Korea’s central bank unexpectedly kept interest rates unchanged on Thursday amid heightened political uncertainty following the recent arrest of impeached President Yoon Suk Yeol.

The Bank of Korea (BOK) left its benchmark rate at 3%, contrary to expectations of a cut to 2.75%.

Earlier in 2024, the central bank had reduced interest rates twice to support economic growth, prompted by consistently softer inflation. However, these expectations succumbed to the escalating political turmoil after President Yoon’s unsuccessful attempt to implement military law in December. Yoon was impeached and arrested at the Presidential compound on Wednesday.

Investors anticipated additional easing by the BOK to cushion against the effects of growing political uncertainty, especially as South Korean stocks and the won faced significant declines over the past month, with the won hitting its weakest point in 15 years.

Analysts suggested that the central bank might lower rates soon, indicating economic pressures from the ongoing political crisis. The BOK’s recent easing cycle was primarily initiated in response to weaker economic growth, high household debt, and declining inflation.

Analysts at Capital Economics noted, “There are good reasons to expect the central bank to resume its easing cycle soon amid signs the political crisis is weighing on the economy. But even if the crisis is resolved soon, GDP growth is expected to struggle.”

The market is now looking ahead to an upcoming press conference by BOK Governor Rhee Chang-Yong for further insights on future policy.