BOK keeps rate at 2.5% amid exchange-rate concerns

Jan 16, 2026, 07:53 am

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Rhee Chang-yong, governor of the Bank of Korea, chairs a Monetary Policy Board meeting at the central bank’s headquarters in Seoul on Jan. 15. / Yonhap

The Bank of Korea on Thursday kept its benchmark interest rate unchanged at 2.5% for a fifth consecutive meeting, citing heightened exchange-rate volatility and lingering financial stability risks.

Governor Rhee Chang-yong said the won–dollar exchange rate was a key factor behind the decision, despite signs of recovery in the semiconductor sector and domestic demand.

“While the exchange rate fell by more than 40 won late last year, it has climbed back to the mid-to-high 1,400 range this year, requiring continued vigilance,” Rhee said at a press briefing following the Monetary Policy Board meeting. He added that although economic fundamentals influence the exchange rate, supply-and-demand factors are also playing a significant role.

The rate decision was unanimous, with no dissenting calls for a cut this time. Rhee noted that five of the board’s six members believe the benchmark rate is likely to remain at 2.5% even three months from now, underscoring a stronger bias toward maintaining current policy settings.

Rhee attributed much of the recent currency weakness to external factors, estimating that about three-quarters stemmed from a stronger U.S. dollar, a weaker Japanese yen, and geopolitical risks, while the remainder reflected domestic supply-and-demand conditions.

The central bank’s policy statement also signaled a firmer hold stance. References to a potential “rate cut” were removed, with the board saying it would support the recovery while closely monitoring domestic and global policy conditions, inflation trends, and financial stability.

At the same time, Rhee pushed back against arguments that rate hikes should be used to stabilize the exchange rate. “The Bank of Korea does not set interest rates based on the exchange rate itself,” he said, emphasizing that the focus is on how currency movements affect inflation. Raising rates by 2–3 percentage points to influence the exchange rate, he warned, would impose significant pain on households and businesses.

Rhee also rejected claims that growth in broad money supply (M2) had fueled the weaker won. He said reducing household debt had been a top priority during his tenure, adding that the pace and level of M2 growth had been effectively stabilized. Assertions that Korea’s liquidity is excessive based on M2-to-GDP ratios, he said, are not supported by established economic theory.

#South Korea #Bank of Korea #Rhee Chang-yong #benchmark interest rate