SEOUL (Reuters) – South Korea’s central bank governor said on Thursday that the most important factor determining the health of Asia’s fourth-largest economy in the next few months was whether recent political turmoil would stabilise.
“Previously, the biggest variable was U.S. monetary and trade policy. Now, more than that, the biggest factor determining the economy is whether the political process proceeds stably, as we all want, in the next few months,” Bank of Korea Governor Rhee Chang-yong told a news conference.
“That is why a normalisation of the political process is way more important than lowering interest rates a month earlier or later,” said Rhee, speaking after the Bank of Korea unexpectedly held policy interest rates steady at 3.00% on Thursday.
The policy decision is the first since President Yoon Suk Yeol’s attempt to impose martial law in early December triggered the country’s biggest political crisis in decades. The turmoil prompted the government to cut its 2025 economic growth forecast to 1.8% from 2.2%.
Rhee also said the decision not to cut rates reflected a need to support the won “which in part has been weakening due to political reasons.”
The central bank governor said, however, that the political event that took place on Wednesday provided support to the won, apparently referring to the arrest of impeached President Yoon.
Yoon’s arrest – the first of a sitting president – was fairly orderly amid fears violence could flare as more than 3,000 police officers marched on his residence. A previous attempt to arrest him on Jan. 3 failed after an hours-long standoff between investigators and Yoon’s personal security.
“The dollar-won exchange rate fell today, thanks to the U.S. inflation report, but what happened yesterday also affected it in a comprehensive manner,” Rhee said, when asked about movements of the won in relation to domestic political turmoil.
On Wednesday, the won briefly strengthened after news of Yoon’s arrest broke.
The currency extended gains on Thursday to hit its strongest level since Jan. 8 at 1,449.6 per dollar.
Yoon’s arrest may have ended one chapter in South Korea’s political crisis, but is unlikely to mark the end.
Yoon did not intend to take part in a second day of questioning on Thursday, his lawyer said, further stonewalling a criminal probe into whether he committed insurrection with his martial law bid as he fights for his political survival.
