Judgment That It Is 'Too Early' to Lower the Base Interest Rate
Background Concerns Over Soaring Household Debt and Real Estate Prices
[Asia Economy Reporter Jang Sehee] The Bank of Korea decided on the 27th at the Monetary Policy Committee meeting to keep the base interest rate at 1.25%. The Bank of Korea lowered the base rate twice in July and October last year due to economic sluggishness, and has maintained it at 1.25% since November.
Although the economic impact of the novel coronavirus infection (COVID-19) is becoming apparent, it seems that the decision was based on the judgment that lowering the base rate is premature.
It also appears that concerns about potentially fueling housing price increases if the rate were lowered were a burden. The Moon Jae-in administration has continued bold real estate regulations following the December 16 housing market stabilization measures. Since the inflow of liquidity could cause an abnormal surge in housing prices in a short period, caution regarding interest rate cuts was inevitable.
Lee Sun, a researcher at Hana Bank Financial Investment Research Institute, diagnosed, "This decision to keep the base rate unchanged prioritizes stabilizing the financial market over stimulating the economy," adding, "It is a result of concerns over rising household debt and soaring housing prices." She also said, "However, if the domestic growth rate continues to decline, the Monetary Policy Committee will need to cut rates in April."
Oh Changseop, a researcher at Hyundai Motor Securities, said, "The judgment on whether lowering the base rate to the 1% range would have an economic effect was unclear," and added, "Since the government has already implemented an additional budget for economic stimulus, it is moving in that direction, and the base rate card was taken out this time."
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