Anchor: The Bank of Korea has again left its key interest rate steady amid a weakened won and rising inflation concerns. Even the United States is concerned about the currency exchange rate, with U.S. Treasury Secretary Scott Bessent issuing a rare statement on the matter in a meeting with the South Korean finance minister earlier this week.
Kim Bum-soo has more.

Report: The decision to hold the key interest rate comes as the government is struggling to stop the depreciation of the South Korean won against the greenback.

Following the year’s first Monetary Policy Board meeting Thursday, the Bank of Korea governor explained why the rate remains steady at two-point-five percent.

[Sound bite: Bank of Korea Gov. Rhee Chang-yong (Korean-English)]
“While inflation is expected to gradually decrease to the target level, it is necessary to pay attention to the possibility that the exchange rate could pose an upside risk. Considering these circumstances, the Monetary Policy Board judged that it would be appropriate to maintain the base interest rate at its current level at this meeting and to continue monitoring domestic and international policy conditions.”

He said the rate decision was unanimous. 

[Sound bite: Bank of Korea Gov. Rhee Chang-yong (Korean-English)]
“In the financial and foreign exchange markets, the won-dollar exchange rate, which had been on an upward trend, fell sharply at the end of last year due to measures to stabilize the foreign exchange market. However, it has since risen back to the mid- to high 14-hundred won range due to the strengthening of the dollar, the weakening of the yen, increased geopolitical risks, and continued overseas investment by residents.”

If the benchmark lending rate is significantly lower than that of the U.S., which currently stands between three-point-five percent and three-point-75 percent, there is a greater risk of an outflow of foreign funds seeking higher returns, leading to the depreciation of the South Korean won.

The value of the won sank to around one-thousand-480 won per U.S. dollar late last month. 

A strong verbal warning from the government managed to briefly push it back to the one-thousand-429 level, but the rate started to weaken again this year.

This may not be good news for the U.S., which is still waiting to receive the 350 billion dollar investment South Korea pledged last year.

With the value of the won approaching one-thousand-500 won per dollar, U.S. Treasury Secretary Scott Bessent issued what some are calling a form of verbal intervention during a meeting with his South Korean counterpart earlier in the week. 

In a press release on Wednesday, the U.S. Treasury Department cited Bessent as saying the recent depreciation of the won is not in line with South Korea’s strong economic fundamentals and that excess volatility is undesirable.

Despite attempts to contain the rising won-dollar rate, the South Korean won strengthened by only seven-point-eight won, with Thursday’s Seoul closing spot rate at 3:30 p.m. standing at one-thousand-469-point-seven won against the dollar.

Upon announcing the rate freeze, the Bank of Korea hinted at keeping the lending cost at the current level at least for the time being.

The central bank governor also ruled out the possibility of raising interest to stabilize exchange rates.

After lowering the interest rate from two-point-75 percent to two-point-five percent in May, the central bank’s Monetary Policy Board has kept the rate unchanged in all five meetings held since then. 
Kim Bum-soo, KBS World Radio News.