Bank of Korea board members wary of FX risks, preserving policy room, minutes show

Most Bank of Korea board members were worried about a weaker won fueling financial instability and price pressure as they kept interest rates unchanged on November 27, minutes of the meeting showed, signalling that the current easing cycle could end soon.

"High volatility in the foreign exchange market due to imbalances in foreign exchange supply and demand and external uncertainty is also a burden," one member said, when arguing why the bank should keep rates steady.

The Bank of Korea's monetary policy board voted to keep the benchmark interest rate unchanged at 2.50% at last month's policy meeting, in line with expectations.

Asia's fourth-largest economy is entering a consumption upswing just as its currency is slumping, leaving little room for policymakers to support growth without fueling inflation.

The won is the worst performing Asian currency so far this quarter apart from the yen.

Earlier on Tuesday, South Korea's Vice Finance Minister Lee Hyoung-il met key exporters, including Samsung Electronics and SK Hynix, to ask for their support in "stabilising forex markets," the ministry said in a statement.

Another board member cautioned it may be time to "keep in mind the capacity for future monetary policy responses" in case of any economic downturns, as the current policy interest rate is already sitting "within the neutral interest rate range," according to the minutes.

-Cynthia Kim/Reuters