Impeachment politics unlikely to have long-term economic impact on S. Korea: BOK chief

Bank of Korea (BOK) Gov. Rhee Chang-yong said Thursday the current political climate surrounding the opposition’s move to impeach President Yoon Suk Yeol is unlikely to affect South Korea’s sovereign ratings and growth momentum given the country’s solid market fundamentals.

Rhee made the point during a press briefing in Seoul, two days after Yoon declared martial law in a surprise late-night address, which was lifted about six hours later after the National Assembly voted to reject it. The opposition side then filed a motion to impeach Yoon.

“The Korean won weakened due to the negative news. But it is forecast to gradually rise if there are no new shocks,” Rhee said.

Following the overnight turmoil, the Korean won sank to a two-year low Wednesday, while the stock market tumbled on heavy foreign selling.

Rhee noted that the markets have stabilized and such impacts are not projected to last long, downplaying speculations of the central bank adjusting the country’s growth outlook and monetary policy path.

“The martial law declaration was purely out of political reasons. We can separate such political events from economic dynamics,” Rhee said, stressing that the economic fundamentals are not linked to politics.

“It is hard to forecast how things will unfold regarding the impeachment process, which adds uncertainties to the market. But I also believe that the matter is not likely to give a shock to the market if history serves as any guide,” the chief said.

Rhee made it clear that the current political situation is not a factor for the bank to consider in making policy decisions or adjusting the growth outlook.

“I think this is more about psychology. I’ve received a lot of questions and messages from many foreign investors, institutions and friends. As the issue appears to have sent a great shockwave to them, I am trying to fully explain the situation while maintaining close communication with them,” he added.

The martial law was short-lived and a flurry of political developments following the martial law declaration leading to its withdrawal rather demonstrated that the country has a mature democracy and is on a rules-based order, Rhee said.

The government has vowed to inject “unlimited liquidity” until the markets are fully normalized. The Bank of Korea has begun repo operations for financial institutions.

Last week, the BOK made a surprise back-to-back policy rate cut, citing slowing export growth and uncertainties stemming from expected policy changes by the new Donald Trump administration.

The central bank has lowered its growth outlook for this year to 2.2 percent from its previous forecast of 2.4 percent and the forecast for next year by 0.2 percentage point to 1.9 percent.