The Bank of Korea held the policy rate on hold in a slide captured by Reuters

Written by Cynthia Kim and Jihoon Lee

SEOUL (Reuters) – South Korea’s central bank unexpectedly left its policy interest rate unchanged on Thursday, limiting the impact of its rate cuts later last year while supporting a weakening economy. 15-year low against the US dollar recently. weeks.

Six out of seven members of the bank’s board said the Bank of Korea should be open to cutting rates in the next three months, Governor Rhee Chang-yong said at a press conference after the board held a review of policy and decided to keep its interest rate unchanged. by 3.00%.

Just seven of 34 economists polled by Reuters had predicted no change in interest rates, while the remaining 27 expected a third consecutive 25-point cut, which it will be the first time since 2009 that it has cut in three straight meetings.

The decision, the first since President Yoon Suk Yeol’s attempted martial law in early December, plunged Asia’s fourth-largest economy into its biggest political crisis in decades. The turmoil prompted the government to cut its 2025 economic growth forecast to 1.8% from 2.2%.

The crash of Jeju Air flight 7C2216, which killed 179 people in the country’s worst aviation disaster, has also weighed on the economy.

The won’s slide is a big issue for policy makers. In the last three months of 2024, the currency has weakened 10.6% against the dollar, which is the biggest quarterly decline since the third quarter of 2008.

Governor Rhee said the rate decision reflects the need to support an economy “that has been weakened in part due to political reasons.”

“We will be able to make an independent decision from the US monetary policy to reduce policy rates once the (domestic) political tensions are settled,” Rhee said, adding that monetary authorities are still they make a simple process to support success.

Local investors said that despite the positive performance of the onshore dollar market, South Korea was still counting on the National Pension Service’s savings to continue. support success.

South Korea’s forward-looking 3-year treasury policy has significantly reduced earlier gains after the rate decision. Victory was initially gained against the dollar, but it returned.

In a statement released shortly after its policy decision, the central bank said it expected economic growth in 2025 to be slower than the 1.9% it had previously projected due to weaker exports and worsening consumer sentiment.

“Higher exchange rates may cause upward pressure (on consumer prices), and increased uncertainty related to global oil prices as well as economic growth at home and abroad,” it also said in the statement.

Economists see the central bank targeting the pace of interest rate cuts next year.

“It appears that the Bank of Korea was once again pressured to hold rates today with the headlines of ‘three consecutive interest rates’. Its monetary easing policy stance remains in place, and the response of the ‘ the market still seems to show a decrease in the rate next month,” said Daishin. Securities economist Kong Dong-rak.

Central rates in a Reuters poll showed a single interest rate cut of 25 basis points this quarter and a similar reduction in the second and third quarters to 2.25%.