Bank of Korea Governor says resolving political turmoil is key to the economy by Reuters

SEOUL (Reuters) – The most important factor determining the health of Asia’s fourth-largest economy in the next few months is whether recent political turmoil stabilizes, South Korea’s central bank governor said on Thursday.

“Before, the biggest variable was US monetary and trade policy. Now, even more so, the biggest factor determining the economy is whether the political process will proceed stably, as we all want, in the next few months,” the Bank of Korea governor said. Central ri. Zhang Yong said at a press conference.

“That is why normalizing the political process is more important than lowering interest rates a month before or after,” Ri said, speaking after the Bank of Korea unexpectedly kept interest rates steady at 3.00% on Thursday.

This is the first political decision since President Yoon Suk-yeol’s attempt to impose martial law in early December sparked the country’s biggest political crisis in decades. The unrest prompted the government to lower its economic growth forecast for 2025 to 1.8% from 2.2%.

Ri also said the decision not to cut interest rates reflects the need to support the won, “which is weakening partly for political reasons.”

However, the central bank governor said Wednesday’s political event provided support for Won, in an apparent reference to the arrest of ousted President Yoon.

Yoon’s arrest – the first for a sitting president – was somewhat staged amid fears that violence could erupt as more than 3,000 police officers marched towards his residence. A previous attempt to arrest him on January 3 failed after an hours-long confrontation between investigators and Leon’s personal security.

“The dollar-won exchange rate fell today thanks to the US inflation report, but what happened yesterday also affected it in a comprehensive way,” Ri said in response to a question about the won’s movements in relation to internal political unrest.

On Wednesday, the won briefly strengthened after news emerged of Yoon’s arrest.

The currency continued its gains on Thursday, reaching its strongest level since January 8 at 1,449.6 to the dollar.

Yoon’s arrest may have closed a chapter in South Korea’s political crisis, but it is unlikely to be the end.

Yoon did not intend to participate in the second day of questioning on Thursday, further obstructing a criminal investigation into whether he committed rebellion by trying to impose martial law while fighting for his political survival, his lawyer said.