Bank of Korea Governor Lee Chang-yong: "Monitoring the Impact of Interest Rate Cuts and Discussing Further Reductions" (Comprehensive)

Bank of Korea Cuts Base Interest Rate by 0.25 Percentage Points
Governor Lee Chang-yong: "Will Monitor Financial Stability and Discuss Further Cuts"

Lee Chang-yong, Governor of the Bank of Korea, is speaking at a press conference held after the Bank of Korea's Monetary Policy Committee lowered the base interest rate by 0.25 percentage points on the 11th. (Photo by Bank of Korea)

Lee Chang-yong, Governor of the Bank of Korea, revealed that a majority of the Monetary Policy Committee members expressed the opinion that it is desirable to maintain the base interest rate at the current level of 3.25% for the next three months. He also stated that they plan to discuss additional rate cuts while monitoring the impact of the recent rate cut on financial stability.

At a press conference held after the Bank of Korea’s Monetary Policy Committee lowered the base rate by 0.25 percentage points on the 11th, Governor Lee said, "Among the six Monetary Policy Committee members excluding myself, five expressed the opinion that the base rate should be maintained at the current level of 3.25% even three months from now." He added, "The remaining one member suggested keeping the possibility open for a rate cut below 3.25%."

He explained, "The five members believe it will take time to confirm the impact of the rate cut on financial stability factors such as real estate prices and household debt, and that the outcome of the U.S. presidential election and developments in geopolitical risks should also be observed." On the other hand, "the other member pointed out that since the government’s macroprudential policies have started to take effect and the government has announced additional measures if necessary, the possibility of further rate cuts should be kept open to respond to downward pressure on domestic demand."

Regarding the pace of future rate cuts, he mentioned, "We will decide while monitoring the financial stability situation." Governor Lee cited the main reason for the recent rate cut as "there is no need to maintain an unnecessarily tight stance when inflation has fallen." He also evaluated that "there has been meaningful progress in household loan trends."

However, Governor Lee emphasized, "We are not in a situation to cut the base rate by 0.5 percentage points at once like the U.S." He explained, "The U.S. experienced inflation rising over 10% and raised rates by more than 5 percentage points, so a rapid pace of rate cuts is natural."

Conversely, he said, "We raised rates by 3 percentage points, so people should not borrow money expecting us to cut rates drastically like the U.S." Regarding those who have borrowed heavily (Yeongkkeuljok), he advised, "If you want to engage in gap investment, please consider how much financial cost you can bear."

On the criticism that the Bank of Korea missed the opportunity to adjust rates timely, he expressed disagreement. He said, "In August, we focused on financial stability and decided to keep the base rate unchanged. It would be better to evaluate whether we missed the chance to cut rates after about a year by looking at the financial stability situation." He added, "There is also a view that this situation arose because the Bank of Korea failed to raise rates further due to wavering, but I completely disagree with such criticism."

Regarding Korea’s inclusion in the World Government Bond Index (WGBI), he expressed that he felt "deeply moved." He stated, "This was thanks to improving accessibility through changes in the foreign exchange market structure and opening the won market. The Bank of Korea also takes pride in contributing to this." On the effect of WGBI inclusion from a monetary policy perspective, he evaluated, "The impact will appear with a time lag, but it has the advantage of allowing more flexible use of the floating exchange rate system."