SEOUL: South Korea's central bank is poised to take a flexible approach to adjusting its key interest rates in response to ongoing political upheaval and a decelerating economy, according to its chief. The statement comes as the nation grapples with both domestic and international challenges that threaten economic stability.
According to Yonhap News Agency, Bank of Korea (BOK) Governor Rhee Chang-yong emphasized the importance of flexibility in monetary policy during a New Year address, noting the need to carefully monitor risks tied to political and economic uncertainties. In recent months, the bank has already cut its benchmark interest rate twice consecutively, lowering it by a quarter-percentage point to 3 percent in November. This move reflects a cautious strategy amid slower export growth and uncertainties linked to the incoming administration of Donald Trump in the United States.
The recent reductions mark the first consecutive rate cuts since February 2009, a period when South Korea was struggling to recover from the global financial crisis. The BOK is anticipated to hold additional rate-setting meetings in the coming months, amid increased uncertainty following President Yoon Suk Yeol's temporary imposition of martial law and subsequent impeachment.
Further complicating the economic landscape are volatile currency rates and a slowdown in economic growth. The Korean won has dropped to its lowest level against the U.S. dollar in over a decade, exacerbating concerns in Asia's fourth-largest economy. Additionally, a recent deadly airplane crash has dampened consumer spending, already weakened by the economic slowdown.
The South Korean finance ministry projects a modest growth rate of 1.8 percent for the current year, a decline from last year's estimated growth of 2.1 percent and significantly below the earlier forecast of 2.6 percent. Governor Rhee cautioned that prolonged political risks could adversely impact the nation's credit standing. However, he noted that the appointments of two justices to the Constitutional Court by acting President Choi Sang-mok are expected to foster financial and economic stability.