Ando Geol "Both Timing and Effect of Base Rate Cut Failed"

Timing 'Late Reaction'... Discrepancy Between Benchmark and Market Interest Rates

Ando-geol Assemblyman

Ando-geol Ahn, a member of the Democratic Party of Korea (Gwangju Dongnam-eul), gave an overall assessment on the 14th during the National Assembly audit of the Bank of Korea, stating, “The Bank of Korea’s decision to cut the base interest rate failed both in terms of timing and effect.”

Rep. Ahn pointed out, “There were government mistakes regarding the timing and effect of the interest rate cut,” adding, “The government failed to implement a preemptive cut and instead started lowering rates belatedly, resulting in a ‘late response’ in terms of timing. As a result, the interest rate cut was already priced in, causing a divergence phenomenon where market interest rates rose despite the base rate cut.”

He said, “The government did not create favorable conditions for the base rate cut but rather worsened them.” As evidence, he cited the fact that since June, the president and the ruling party have led pressure for a rate cut, making it a foregone conclusion, and the phenomenon where market interest rates excessively fell below the policy rate.

Rep. Ahn further criticized that the government’s easing of real estate financial regulations, such as postponing the second phase of stress DSR, played a role in fueling housing prices in Seoul and increasing household loans. He argued, “Since June this year, the rise in household loans and housing prices is mainly due to the government’s mixed messages and excessive policy-driven loan supply, making it a joint failure of the government and the Bank of Korea.”

Meanwhile, citing a report released by the Bank for International Settlements (BIS), Rep. Ahn diagnosed, “Currently, in South Korea, the increase in unsecured loans is not leading to investment or consumption due to principal and interest repayment costs, failing to support national growth and instead flowing into real estate.” He advised, “The government and the Bank of Korea will need to conduct specific reviews to ensure that future interest rate cuts do not have negative effects.”