S. Korea braces for continuation of high global interest rates: finance minister

Major economies are expected to keep their interest rates higher for longer than expected to tame inflation, and South Korea is preparing for policy buffers to handle various external uncertainties, the finance minister said Friday.

“Inflation is yet to be fully brought under control around the world, and chances are that high levels of interest rates will continue for longer,” Finance Minister Choo Kyung-ho said in a parliamentary audit of his ministry.

He cited the ongoing war between Israel and the Palestinian militant group Hamas, the subsequent fluctuation in global oil prices and the slow global economic recovery as major headwinds.

“The Middle East situation has deepened global uncertainties, which could have a significant impact on our financial and foreign exchange markets and the real economy. The government has been on alert and thoroughly preparing for policy responses,” Choo said.

On Thursday, the Bank of Korea (BOK) kept the benchmark rate unchanged at 3.5 percent, a level seen since January 2023. It is the sixth straight freeze, but the level is the highest since 2008.

Asked about foreign exchange reserves, the minister said that the current level is “deemed enough to respond to external shocks.”

South Korea’s foreign reserves came to US$414.12 billion as of end-September, down $4.18 billion from the previous month, as the dollar’s ascent last month reduced the converted value of holdings denominated in other currencies, according to the BOK.

The amount has fallen for two straight months. Some opposition lawmakers have called for an increase.