Despite concerns about the sluggish economy, the Bank of Korea has frozen interest rates for the 13th time. Immediate reaction from the presidential office, expressing regret that preemptive rate cuts should have been made for domestic consumption.
The housing market has hindered the rate cut. Both inflation and growth are pointing towards a decrease, but the Bank of Korea is cautious about lowering rates prematurely, fearing it could ignite a surge in household debt. The urgent need for domestic recovery has led to dissatisfaction from the presidential office towards the Bank of Korea’s decision to freeze interest rates. Considering the historical taboo of the government interfering with the independence of the Bank of Korea, the expression of discontent from the government is highly unusual.
On the 22nd, the Bank of Korea’s Monetary Policy Committee unanimously decided to freeze interest rates at the current level (3.5%) for the 13th consecutive time. This marks the longest period of freeze since the rate hike in January last year.
A senior official from the presidential office, in a conversation with Maeil Business Newspaper, mentioned that while interest rate decisions are the exclusive authority of the Monetary Policy Committee, there is a sense of regret that if the Bank of Korea had made a preemptive decision, it might have been better in terms of domestic consumption, especially considering the expected rate cut by the Federal Reserve in September.
Governor Lee Ju-yeol of the Bank of Korea stated, “We will listen to all those opinions and make a decision on interest rates through internal discussions.” The Bank of Korea has lowered its forecast for real GDP growth this year from 2.5% to 2.4%, reflecting the continued weakness in private consumption and domestic demand, following the negative growth in the second quarter.
While the focus on growth has decreased, confidence in price stability has increased, leading to interpretations that the ‘blinked’ rate cut in October was a result of this. There are now four members of the Monetary Policy Committee who are open to the possibility of a rate cut within the next three months, an increase of two members from the previous meeting in July.
Governor Lee mentioned, “Considering only the price level, the conditions for a rate cut have been judged to be more appropriate,” and “I am more convinced that the inflation rate will converge to the target level of 2%.”
Despite the weak domestic demand and downward revision of price outlook, the Bank of Korea refrained from lowering interest rates due to concerns about real estate prices. Governor Lee emphasized, “We will not implement a monetary policy that fuels the psychology of rising real estate prices by supplying excessive liquidity,” while issuing a direct warning to the ‘household debt slaves’ who take out excessive loans to buy houses.
[Kim Junghwan Reporter / Woo Jeyoon Reporter]