S. Korea's central bank holds rate steady in first rate decision of 2025

Policymakers at Seoul's central bank have decided to hold their benchmark interest rate steady at three percent.

Our correspondent Lee Soo-jin tells us why.

South Korea's central bank held its key interest rate steady at 3 percent, as the Korean won remains weak.

The decision was announced on Thursday following the first monetary policy committee meeting of the year.

"We decided that it would be appropriate to maintain the current rate while monitoring internal and external conditions as domestic political circumstances and changes in major countries' economic policies have increased uncertainties in terms of the economic outlook and foreign exchange markets."

It's worth noting that the rate freeze decision comes after two consecutive quarter-point cuts in both the October and November monetary policy meetings last year after the key rate was frozen at 3-point-5 percent since January 2023 in a bid to tackle inflation.

There was a lot of speculation in the markets before the decision was announced.

A rate cut had been anticipated by some due to concerns about a downturn in the economy due to the ongoing political turmoil, as well as uncertainties over President-elect Donald Trump's second term.

But the Bank of Korea ultimately decided to freeze the interest rate, due to a weaker Korean won against the greenback, and minutes from the U.S. Fed's December meeting where officials hinted they would be moving more slowly on interest rate cuts.

If the interest rate gap between the two countries widens, it could lead to further currency depreciation.

In December, the average won-dollar exchange rate stood at 1-thousand-4-hundred-thirty-four-point-4-2, a change of nearly 3-percent from an average of 1-thousand-3-hundred-ninety-three-point-3-8 in November.

"So it might be better to leave the interest rate where it is right now and at least for the moment have government spending increase. I do not think inflation will be a serious problem this year."

The country's annual consumer inflation rose by 2-point-3 percent in 2024, the lowest rate since the COVID-19 pandemic in 2020.

As for its assessment of the domestic economy, the Bank of Korea forecasted sluggish economic growth this year, as exports are expected to weaken due to political uncertainties.

"Acknowledging concerns about the domestic economy, the central bank hinted at possible rate cuts in the future and pledged to carefully monitor inflation and currency trends before making the decision.

Lee Soo-jin, Arirang News."