The Bank of Korea (BOK) in Seoul on December 28, 2024.
Kim Jae-Hwan | Light flare | Getty Images
South Korea’s central bank held its benchmark rate at 3 percent on Thursday in a surprise move, opting to assess changes in domestic and external economic conditions after making two consecutive cuts at its previous meetings.
Economists polled by Reuters had forecast a drop of 25 basis points.
In its statement, the BOK said that although inflation had stabilized and household debt had slowed, “downside risks to economic growth have intensified and exchange rate volatility has increased.” is heightened due to the unexpected political risks that have recently intensified.”
The bank also said uncertainty had also increased due to “changing domestic political situations and economic policies of major countries.”
The BOK’s decision comes amid political unrest in the country, with the arrest of deposed President Yoon Suk Yeol on Wednesday, a first for a sitting South Korean president.
South Korea Kospi was up 1.25% after the decision, while the Kosdaq small-cap index rose 1.69%. The South Korean won strengthened around 0.3% to trade at 1,450.27.
Alex Holmes, research director for Asia at the Economist Intelligence Unit, told CNBC: “Squawk Asia Box” immediately after the decision, that it was a “very delicate” decision for the bank.
The won has fallen more than the Japanese yen since early October, despite the fact that the BOK has a lower interest rate differential than the U.S. Federal Reserve, Holmes added.
At the same time, Holmes noted that 2024 was the first year that household debt had declined as a percentage of GDP, and that the BOK would not want to cut rates too quickly to prevent a rebound.
