Korea Business News Agency - NSP NEWS AGENCY.

(Seoul=NSP NEWS AGENCY) = The Bank of Korea's Monetary Policy Committee kept the key interest rate unchanged at 3.0% in the first meeting of 2025. This was due to the won-dollar exchange rate nearing 1,500 and the reduced likelihood of a rate cut by the Federal Reserve(Fed) ahead of the U.S. presidential transition.

The Bank of Korea's Monetary Policy Committee on Saturday decided to keep the key interest rate unchanged at 3.0 percent. After cutting rates by 25 basis points in October and November of last year, the BOK took a pause to monitor the situation.

The BOK's decision was influenced by the KRW-dollar exchange rate, which has risen to near financial crisis levels, and the large outflows of foreign investment funds that have resulted. The won-dollar exchange rate has recently hovered around 1460 won.

The high exchange rate led to foreign investors pulling $3.86 billion($5.6386 trillion) out of South Korea's stock and bond markets last December.

Some believe that the ebb and flow of foreign investment funds is due to political issues. It is pointed out that foreign investors did not have a significant outflow from mid-2023 to mid-2024, when the interest rate differential between the U.S. and South Korea widened by 2 percentage points, but the political turmoil caused by President Yoon Seok-yul's declaration of martial law and impeachment in early December last year led to a large outflow.

There are also analysts who believe that the arrest of the president for the first time in the country's history on May 15 has cut off one of the stems of political uncertainty, leading the BOK to conclude that it should wait and see.

The recent comments by US Federal Reserve Chairman Jerome Powell that he may pace US interest rate cuts ahead of US President-elect Donald Trump's inauguration also had an impact. In December, the U.S. consumer price index (CPI) rose 2.9% year-on-year, the highest since July last year. This was the highest level in five months since July last year. If this continues, it may be difficult for the Fed to cut rates.

By Soon-ki Lee(s8789@nspna.com) and Soo-in Kang(sink606@nspna.com)

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