BOK's Rhee Warns of 'Misaligned' Won, Vows to Guard FX Stability

South Korea’s exports posted stronger-than-expected growth in December 2025, driven by strong semiconductor demand and global supply chain resilience. The nation’s trade surplus widened to $12.18 billion, reflecting continued export strength amid global trade tensions. This growth offers some relief to the economy, which has navigated tariff uncertainties and geopolitical tensions in 2025.

Bank of Korea (BOK) Governor Rhee Chang Yong has warned that the won remains misaligned, raising concerns about currency volatility and its impact on financial stability. While policymakers have maintained their benchmark interest rate at 2.5% to balance economic support with stability, Rhee has emphasized the risks posed by household debt and exchange rate fluctuations.

The central bank’s cautious stance reflects broader macroeconomic challenges. Exports account for over 40% of South Korea’s GDP, making the economy highly sensitive to global demand shifts and trade policy changes according to market analysis. The BOK is closely monitoring currency dynamics to prevent abrupt volatility that could undermine economic confidence.

Why the Move Happened

Governor Rhee’s comments highlight a growing concern over the won’s strength relative to major currencies. A misaligned currency could erode export competitiveness, particularly in key industries like semiconductors and automotive. Rhee has stated that the central bank remains evenly split on near-term monetary policy, indicating a balanced approach to managing inflation, growth, and currency stability.

The BOK’s decision to hold interest rates steady in December reflects the need to avoid abrupt policy shifts that might destabilize financial markets. South Korea’s central bank also considers the potential for external shocks, including global inflation persistence and shifting trade dynamics.

How Markets Responded

South Korean financial markets have shown mixed reactions to the BOK’s policy decisions and Rhee’s warnings. While strong export data has bolstered investor confidence in the economy’s resilience, concerns over currency misalignment have triggered increased hedging activity in the foreign exchange market. The won’s performance has remained volatile, particularly in response to U.S. Federal Reserve policy signals and global trade tensions. Analysts suggest that the BOK’s focus on maintaining currency stability could lead to more targeted interventions in 2026, should volatility persist.

What Analysts Are Watching

Market participants are closely monitoring the BOK’s policy roadmap for 2026, particularly its response to global macroeconomic developments. Analysts are watching for signs of policy flexibility, especially if global trade conditions weaken or if inflationary pressures persist.

Rhee’s emphasis on currency stability suggests the BOK is prepared to take defensive measures if needed. However, such interventions would need to be carefully calibrated to avoid unintended consequences, such as market distortions or reduced investor confidence.

South Korea’s central bank also faces the challenge of managing household debt, which has remained elevated despite economic growth. Balancing support for growth with financial stability is a key policy consideration for 2026.