Bank of Korea keeps interest rates unchanged at 3%

South Korea’s central bank on Thursday kept its benchmark interest rate at 3% in a surprise move, choosing to assess changes in domestic and external economic conditions after making two successive cuts at its previous meetings.

Economists polled by Reuters had estimated a cut of 25 basis points.

The Bank of Korea said in its statement that although inflation stabilized and household debt slowed, “downside risks to economic growth intensified and exchange rate volatility increased due to unexpected political risks that have escalated recently.”

The bank also said that uncertainty had also increased due to “the changing internal political situation and economic policies in major countries.”

The BOK’s move comes amid political turmoil in the country, with the arrest of ousted President Yoon Suk-yeol on Wednesday, the first for a South Korean president in office.

South Korea Cosby The Kosdaq Small-Cap Index rose 1.25% after the decision, while the Kosdaq Small-Cap Index rose 1.69%. The South Korean won rose by about 0.3% to trade at 1450.27.

Alex Holmes, Asia research director at the Economist Intelligence Unit, told CNBC:Squawk Asia FundImmediately after the decision that it was an “extremely difficult” decision for the bank.

“I mean, on the one hand, even before all this political uncertainty, the economy wasn’t necessarily in good shape. Yes, pockets of the export sector were very hot. You know, chips and semiconductors and electronics, but other exports weren’t in good shape,” Holmes said. At all.

“In fact, the local economy has been struggling to gain momentum. So there has been a really pessimistic backdrop to growth, but at the same time, it has to balance the fact that the currency has been sold off quite significantly,” he added.

Holmes added that the won has fallen more than the Japanese yen since the beginning of October, even though the Bank of Korea has a smaller interest rate differential compared to the US Federal Reserve.

Meanwhile, Holmes noted that 2024 was the first year that household debt as a share of GDP fell, and the BOK would not want to cut interest rates too quickly to prevent a rebound.