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MNI (TOKYO) - Bank of Korea Governor Rhee Chang-yong said on Thursday the board's decision to cut the Base Rate 25 basis points to 3% would help mitigate downside economic risks, and that uncertainty over future growth had increased.
"Therefore, we judged that it is necessary to make further adjustment to the Base Rate, taking into account changes in the economic situation,” the governor told reporters. The Board will thoroughly assess incoming economic data and the impact of the rate cut on inflation, growth, and household debt and exchange-rate stability, while examining the trade-offs among these variables to determine the pace of further cuts, he added.
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)
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.