[Yongsan Report] Presidential Office Sparks Debate Over 'Regrettable' Comment on Base Interest Rate

Concerns Over Independence Violation Denied
Hope for Domestic Demand Boost from Interest Rate Cuts

Bank of Korea Governor Lee Chang-yong is speaking at the monetary policy direction press conference held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 22nd.
[Image source=Yonhap News]

The Presidential Office unusually expressed regret over the Bank of Korea's decision to keep the base interest rate unchanged. Concerns have arisen that this could undermine the central bank's independence and directly influence the next interest rate decision at the Monetary Policy Committee meeting in October, leading to various interpretations of Yongsan's remarks.

The Presidential Office cautioned against overinterpretation. However, it explained that the reason behind the statement was the growing necessity to avoid further delays in lowering interest rates, considering the continued sluggish domestic demand and the difficulties faced by small business owners and vulnerable groups.

Notably, the remarks from a senior official at the Presidential Office came immediately after the base interest rate decision was made. If the Presidential Office intended to exert pressure on the central bank's monetary policy decisions, it would likely have done so before the policy decision, raising questions about the need for public statements to apply pressure. The heads of the Ministry of Economy and Finance, Bank of Korea, Financial Services Commission, and Financial Supervisory Service regularly hold the 'F4 (Finance4) meetings' to discuss policy issues.

A Presidential Office official stated, "Officials from the U.S. Federal Reserve (Fed) attending the Jackson Hole meeting, which opened on the 22nd (local time), have hinted at a rate cut in September, and domestically, the trend is toward a rate cut in October," adding, "We fully understand that interest rate decisions are the exclusive authority of the Monetary Policy Committee, and Yongsan's remarks do not influence the Bank of Korea's decisions."

The Bank of Korea lowered its real Gross Domestic Product (GDP) growth forecast for this year from 2.5% to 2.4%, citing sluggish domestic demand, and with the recent stabilization of the exchange rate, the government hopes that a preemptive rate cut will help stimulate domestic demand. In particular, the Presidential Office's position is that interpreting the remarks as pressure is excessive, given that Sung Tae-yoon, the Policy Chief, is a traditional economist, and Park Chun-seop, the Senior Secretary for Economic Affairs, previously served as a Monetary Policy Committee member and has a deep understanding of monetary policy.

Kwon Hyo-sung, a Bloomberg economist and former Bank of Korea official, said, "In September, there will be restructuring of real estate project financing (PF), and with the second phase implementation of the 'Stress Debt Service Ratio (DSR),' difficulties for self-employed individuals are expected to increase, which likely prompted the government to unusually express its position," adding, "From the Bank of Korea's perspective, the recent rise in real estate prices is significant, and they had no choice but to keep rates steady for financial stability."