By Cynthia Kim and Jihoon Lee
SEOUL (Reuters) – South Korea’s central financial institution unexpectedly left its coverage rate of interest unchanged on Thursday, weighing the impression of its back-to-back cuts final 12 months whereas supporting the gained which weakened to a 15-year low versus the U.S. greenback in current weeks.
The Financial institution of Korea held its benchmark rate of interest at 3.00% at its financial coverage overview, an end result anticipated by solely seven of 34 economists polled by Reuters. The remaining 27 had anticipated the financial institution to chop the speed by 25 foundation factors.
The choice is the primary since impeached President Yoon Suk Yeol’s try and impose martial regulation in early December threw Asia’s fourth-largest economic system into its greatest political disaster in many years. The turmoil prompted the federal government to chop its 2025 financial progress forecast to 1.8% from 2.2%.
The crash of Jeju Air flight 7C2216, which killed 179 individuals within the deadliest air catastrophe on South Korean soil, has additionally weighed on the economic system.
On prime of that, the gained’s slide has been a significant concern amongst policymakers. Within the remaining three months of 2024, the forex weakened 10.6% in opposition to the greenback, the largest quarterly drop for the reason that third quarter of 2008.
Native forex sellers mentioned South Korea has been counting on smoothing operations within the onshore dollar-won market in addition to the Nationwide Pension Service’s forex hedging operations to help the gained.
“(Thursday’s price choice) can be as a consequence of its (the BOK’s) better concentrate on financial and monetary stability considerations, till political uncertainty eases. As an alternative of January, we count on the BOK to chop the coverage price once more at its February assembly, after it revises its financial outlook.” mentioned Park Jeong-Woo, an analyst at Nomura Securities who was one of many seven analysts who appropriately predicted the speed choice.
Analysts now see the central financial institution eying a extra gradual tempo of rate of interest discount within the 12 months forward.
Median forecasts within the survey confirmed one rate of interest minimize of 25 foundation factors this quarter and cuts of the identical diploma in each the second and third quarters taking the speed to 2.25%.
Market focus now switches to Governor Rhee Chang-yong’s press convention at 0210 GMT, the place the names of any dissenters to the coverage choice might be introduced. Dissenting votes sometimes result in coverage adjustments in subsequent months.
