(Bloomberg) -- Bank of Korea Governor Rhee Chang-yong vowed to take a flexible approach to future interest rate cuts while closely monitoring risks in the face of increased political and economic uncertainty.
The BOK is scheduled to make its next rate decision this month as South Korea grapples with its worst political turmoil in decades sparked by President Yoon Suk Yeol’s brief imposition of martial law, which ultimately led to his impeachment.
“The household debt flow has stabilized due to strengthening of macro-prudential policies but if rate cuts continue, that could become a source of anxiety so we need to monitor with heightened vigilance,” Rhee said in a New Year’s speech on Thursday.
The BOK unexpectedly conducted back-to-back interest rate cuts in the fourth quarter of last year to shore up the economy as US President-elect Donald Trump has threatened to impose sweeping tariffs.
Rhee’s comments come as the finance ministry has sharply cut its economic growth forecasts for 2025, reflecting the fallout from the martial law debacle and the clouds hanging over the trade-reliant nation.
The political upheaval has sent the won to its lowest level since 2009 and weighed on South Korea’s stock markets. A Jeju Air plane crash on Sunday that killed all but two of 181 people onboard may further dent consumer sentiment.
“It’s hard to stabilize our economy with monetary policy alone under the current situation,” Rhee said, warning that a continued leadership vacuum could add pressure on markets.
“We will be flexible in deciding the pace of rate cuts while closely monitoring the development of domestic and external risk factors and their impact on the economy,” Rhee added.
(Updates to clarify Rhee’s comments in third paragraph)
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