BOK governor sees economic recovery despite last year's stagnation

SEOUL, Feb 23 (AJP) - South Korea’s central bank expects economic growth in 2026 to rise significantly compared to the previous year, despite last year’s performance falling short of initial market expectations.

"Despite uncertainties surrounding US tariff policies, domestic demand is recovering on the back of favorable consumer sentiment, while exports continue their upward trend led by the robust semiconductor sector," BOK Governor Rhee Chang-yong stated during a parliamentary report to the Strategy and Finance Committee on Monday.

Regarding inflation, Rhee projected that consumer price growth would maintain a stable trajectory near the 2 percent target. He, however, left the door open for possible fluctuations in international oil prices and exchange rates - which could serve as potential risk factors.

The volatility of the won-dollar exchange rate and stock prices was also identified as a significant concern.

"While the rise in the exchange rate has been tempered by year-end measures to stabilize foreign exchange supply and demand, the market remains highly volatile, still influenced by external variables such as the movements of the US dollar and the Japanese yen," Rhee noted.

On the equity market, he explained that while stock prices rose sharply driven by the boom in key sectors like semiconductors, volatility is now increasing due to concerns over overinvestment in Artificial Intelligence (AI) and the potential displacement of traditional industries.

Governor Rhee further emphasized the need for vigilance regarding financial stability. "Credit risks remain prevalent in vulnerable sectors, such as the self-employed, while concerns persist over accumulating financial imbalances caused by rising housing prices in the Seoul metropolitan area," he said.

The BOK plans to calibrate its future monetary policy by comprehensively evaluating economic growth, inflation, and financial stability, as global and domestic uncertainties remain elevated.

Following Governor Rhee's remarks, yields in the Seoul bond market saw a broad uptick on Monday. The benchmark three-year government bond yield closed at 3.154 percent per annum, rising 1.1 basis points from the previous trading day. The 10-year Treasury yield rose by 3.8 basis points to finish at 3.578 percent.

The South Korean economy contracted by 0.3 percent in the fourth quarter of 2025 compared to the previous quarter, according to data released by the BOK on Jan. 22. On an annual basis, the economy recorded a growth of 1.0 percent, significantly missing the central bank's original consensus of 1.8 percent.