Bank of Korea holds rates, signals end to easing cycle to safeguard FX stability

By Cynthia Kim and Jihoon Lee

SEOUL, Jan 15 (Reuters) - South Korea's central bank on Thursday kept its benchmark interest rate unchanged and signaled the end to its current easing cycle, prioritizing financial stability in its first policy meeting of the year as the won hovers 16-year lows.

The Bank of Korea's monetary policy board voted to keep the benchmark interest rate KROCRT=ECI unchanged at 2.50%, as expected by all 34 economists polled by Reuters.

Having delivered 100 basis points of cumulative cuts since October 2024, Governor Rhee Chang-yong has been signalling a prolonged pause in the current easing cycle amid geopolitical uncertainties and persistent fund outflow risks.

On Thursday, the BOK took a step further by dropping language from its previous statement when it said it would "decide whether and when to implement any further base rate cuts".

The hawkish move pushed the March futures on three-year treasury bonds KTBc1 down as much as 0.21 points to 105.13, erasing early gains of 0.08 points.

"BOK officials have expressed concern that a weaker currency could push up import costs and lead to higher inflation," Gareth Leather, an economist at Capital Economics, said in a report released after the rate decision.

"For now, however, rates are likely to remain unchanged over the next few meetings."

Rhee will hold a press conference at 0210 GMT, which will be livestreamed via YouTube.

Policymakers so far have failed to stabilize the faltering won, one of Asia's worst performing currencies in the second half of last year, as appetite for U.S. equities among domestic retail investors remained strong.

Analysts have pushed back the next predicted cut to the first quarter of 2027 from the first quarter of this year, as they expect authorities' efforts to steady the won to continue amid unfavorable external conditions.

They expect headline inflation to average 1.9% this year, slightly below the central bank's target of 2%.