[2024 National Audit] Democratic Party Divided Over 'Interest Rate Cut' with "Well Done" and "Too Late" Responses

Hwang Myung-sun "Positive for Self-Employed... Effect of Easing Delinquency Rates"
Ahn Do-gul "Failure in Both Timing and Effect"

Kim Young-hwan & Park Hong-geun Criticize Government Fiscal Policy Missteps
"Policy Authorities Make Excessive Demands on Bank of Korea"

The Democratic Party lawmakers expressed both positive and negative evaluations regarding the Bank of Korea's decision to cut the base interest rate last week.

The National Assembly's Planning and Finance Committee (PF Committee) held a government audit on the 14th at the Bank of Korea in Jung-gu, Seoul. On that day, Hwang Myeong-seon, a Democratic Party member of the PF Committee, requested an explanation from Lee Chang-yong, Governor of the Bank of Korea, about the interest rate cut. Governor Lee said, "Self-employed individuals are struggling, and the economy is facing difficulties," adding, "To address these issues, we need to lower the interest rate quickly, and we are coordinating accordingly." He also stated, "There are views that we delayed the rate cut and others that see it as appropriate," and "I think it can be evaluated about a year later."

The Bank of Korea's Monetary Policy Committee lowered the base interest rate by 0.25 percentage points from 3.50% to 3.25% per annum at its meeting on the 11th. Since raising the base rate from 0.50% to 0.75% in August 2021, the Bank of Korea had increased it ten times to 3.50%, maintaining a monetary tightening stance. This rate cut marked a change in the monetary policy stance for the first time in 38 months. Six out of seven Monetary Policy Committee members agreed to the rate cut.

Lee Chang-yong, Governor of the Bank of Korea, is attending the National Assembly's Planning and Finance Committee's audit of the Bank of Korea held on the 14th at the Bank of Korea in Jung-gu, Seoul, responding to questions from lawmakers. Photo by Kang Jin-hyung aymsdream@

Lawmaker Hwang said, "Personally, I think positively," analyzing that the burden of loans on self-employed individuals is a bigger issue than the side effects that may arise from the rate cut. He stated, "It is true that there is some risk that the loan volume itself may increase due to the rate cut," but added, "It will greatly help to alleviate the more serious situation of rising loan delinquency rates." He further added, "Since the difficulties will not be completely resolved by this rate cut, the government should also present practical policies."

On the other hand, there were criticisms that the timing of the rate cut should have been earlier. Democratic Party lawmaker Ahn Do-geol said, "It failed both in timing and effect," and stated, "The government failed to create the preconditions for the rate cut and worsened the conditions." This referred to a ruling party official's remarks in June and July that "a rate cut is necessary," which Ahn described as 'worsening the conditions.' Ahn also mentioned the divergence phenomenon where market interest rates rose despite the base rate cut, attributing it to "the government's artificial housing stimulus policy."

Lee Chang-yong, Governor of the Bank of Korea, is delivering a greeting at the National Assembly Budget Committee's audit of the Bank of Korea held on the 14th at the Bank of Korea in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

Some other Democratic Party lawmakers criticized the government policy authorities. There was an argument that relying solely on interest rate adjustments to stimulate the domestic economy is an 'excessive demand' on the Bank of Korea. Lawmaker Kim Young-hwan referred to the situation where the interest rate gap between the U.S. and Korea had reversed by about 2 percentage points, saying, "I want to evaluate that the Bank of Korea managed well despite going down an uncharted path." Furthermore, he said, "The rate cut as a measure against economic downturn is not a panacea," and "I think fiscal policy should be implemented together." Lawmaker Park Hong-geun also said, "It can be seen as putting a burden on the Bank of Korea with the frame of the base interest rate," and added, "In the current situation where inflation is stable, the government should consider fiscal policies to revitalize domestic demand."