The Board's decision was its second straight cut following October's 25bp easing, which was its first reduction since August 2021. Some economists interviewed by MNI had expected the Board to hold. (See MNI BOK WATCH: Board Likely To Hold; Q1 Rate Cut Eyed)
CONSENSUS FAILURE
“In this decision, four of the six members, excluding myself, expressed the view that a rate cut would be appropriate, while two members―Chang Youngsung and Ryoo Sangdai―proposed maintaining the Base Rate at the current level of 3.25%,” the governor noted.
The decision reflected the bank's concern over the slowing economy as opposed to a weaker currency and lingering high household debt.
“Downward pressure on economic growth has intensified, although volatility of the exchange rate has increased, inflation stabilisation has continued along with an ongoing slowdown in household debt," Rhee continued.
GROWTH LOWERED
The bank lowered its growth rate outlook to 2.2% for this year and to 1.9% in 2025, down 20bp from its August forecasts. South Korea’s gross domestic product rose 0.1% q/q over Q3, the first growth in two quarters following Q2's 0.2% fall, showing a lack of economic momentum amid weak domestic demand.
In a statement following the decision, the BOK noted the Board would continue to conduct monetary policy to stabilise CPI at the target level over the medium-term horizon "as it monitors economic growth, while paying attention to financial stability."
It revised its CPI forecast to 2.3% this year and 1.9% in 2025 from August's 2.5% and 2.1% prediction, following October's 1.3% y/y rise, its lowest level since January 2021. (See chart)
