The Bank of Korea signaled an extended pause in monetary easing as board members voiced concerns over currency stability, according to minutes released Monday from the central bank's January policy meeting.
The decision marks a strategic divergence from regional peers. While the People's Bank of China has pursued aggressive stimulus and the Bank of Japan maintains ultra-loose policy, Seoul's central bank is prioritizing won stability over growth support—a choice that reflects South Korea's unique vulnerabilities in the current global environment.
"Several board members expressed concerns about the won's weakness and its impact on import prices," the minutes stated. The Korean won has depreciated approximately 8 percent against the dollar over the past year, raising inflationary pressures despite sluggish domestic demand.
The BOK's hawkish stance comes as Korea faces mounting external pressures. The economy, heavily dependent on semiconductor and automobile exports, confronts potential U.S. tariff increases under the Trump administration and weakening demand from China, its largest trading partner. Fourth-quarter GDP growth slowed to 1.2 percent year-on-year, the weakest pace since 2023.
Yet the central bank appears more concerned about currency volatility than growth headwinds. Board members noted that premature easing could trigger capital outflows, particularly as the U.S. Federal Reserve maintains elevated rates. This reflects a longstanding pattern in East Asian monetary policy: when forced to choose between growth stimulus and currency defense, central banks typically prioritize exchange rate stability.
The won's performance carries outsized importance for Korea, which imports nearly all its energy and raw materials. A weaker currency directly translates to higher inflation—a politically sensitive issue as President Lee Jae-myung's administration struggles to stabilize living costs after months of political turbulence.
The BOK's decision to hold rates at 3.0 percent effectively isolates Seoul in regional monetary policy. Beijing continues cutting rates to support its property-crisis-hit economy, while Tokyo has only recently begun normalizing from negative rates after decades of deflation. Korea stands alone in maintaining relatively tight policy amid economic weakness—a testament to the won's fragility and Seoul's limited policy space.
Watch what they do, not what they say. In East Asian diplomacy, the subtext is the text.
