The Bank of Korea (BOK) in Seoul on Dec. 28, 2024.
Kim Jae-Hwan | Lightrocket | Getty Images
Risks posed by South Korea’s political turmoil to its economic system may subside inside half a 12 months, however exterior pressures owed to doable tariffs on the nation’s exports to the U.S. are “troublesome,” a key Bank of Korea official mentioned.
“We had two presidential impeachments earlier than, and for each circumstances, the political turmoil or uncertainties have subsided inside three to 6 months,” Soohyung Lee, Monetary Policy Board member on the Bank of Korea mentioned Thursday on CNBC’s “Squawk Box Asia.”
It’s doable that the political turmoil might not take as a lot of a toll on the nation’s economic system, however the draw back dangers posed by exterior components are extra worrisome, Lee mentioned.
The potential tariffs proposed by U.S. President-elect Donald Trump “places quite a lot of stress, or perceived stress, for export-driven nations, together with South Korea,” Lee mentioned.
Not solely would tariffs hit South Korea’s exports, they could additionally reintroduce inflationary forces within the U.S. economic system, which may preserve U.S. rates of interest excessive and the greenback robust, in flip impacting the Korean gained.
With the Chinese yuan probably depreciating as properly, these components may weaken the South Korean gained even additional, Lee acknowledged, which could improve volatility within the nation’s monetary markets.
The gained was final buying and selling at 1,466.48 in opposition to the U.S. greenback, close to 15-year lows it hit in December 2024.
Even although the BOK has coverage instruments comparable to “overseas reserves and coordination with authorities companies like [the] Ministry of Finance,” Lee harassed that “the valuation of the Korean gained is set out there” and the BOK has no particular goal stage for the foreign exchange charge.
Government companies will solely step in to “cut back volatility, if wanted,” Lee mentioned.
A confluence of inside and exterior stress on South Korea’s economic system led the nation’s Ministry of Economy and Finance to forecast the nation’s gross home product progress in 2025 at 1.8%, in contrast with 2.1% projected for 2024.
The BOK in November had cut its forecast for 2025 to 1.9% from 2.1%
To increase home demand, the finance ministry will expand tax exemptions of spending throughout the first half of 2025, and introduce incentives for corporations that improve wages, Reuters reported.
But for the BOK, “the inflation charge and monetary stability would be the fundamental issues,” mentioned Lee, and “not a lot financial progress per se, if the three targets are conflicting with one another.”
The BOK unexpectedly cut its benchmark rate by 25 foundation factors to three% in November. The transfer adopted a 25-basis-point reduction in October, making it the primary time since 2009 the nation’s central financial institution diminished charges in two consecutive conferences.
South Korea’s inflation rate in November rose to 1.5% 12 months on 12 months. It got here in beneath the 1.7% anticipated by economists in a Reuters ballot, however was nonetheless up from the 1.3% improve within the prior month.
“We have a fairly robust demonstration of the sturdy economic system for previous 20 years, so I’m cautiously optimistic in regards to the financial situations,” Lee mentioned.
— CNBC’s Lim Hui Jie contributed to this report.
