[Yongsan Report] Subtle Tensions... Yongsan Making the Bank of Korea Uncomfortable

Avoiding Direct Mention Yet Saying "Interest Rate Cut Timing"
Expressing Regret About Current Situation While Being Reserved

"Stimulating domestic demand is more urgent than ever, so how can the base interest rate 'freeze' be a minority opinion?"

Ahead of the Bank of Korea's Monetary Policy Committee meeting on the 28th, Yongsan is showing signs of discomfort. Last month, the Bank of Korea pivoted its monetary policy for the first time in 3 years and 2 months by lowering the base interest rate by 0.25 percentage points (p) from 3.50% to 3.25%. However, as the focus shifted toward maintaining the base interest rate at this month's Monetary Policy Committee meeting, indirect dissatisfaction was expressed. Typically, minority opinions of Monetary Policy Committee members serve as important 'signals' for future interest rate decisions, so the market views it as highly likely that the Bank of Korea will keep the base interest rate unchanged at this month's meeting.

According to the minutes of the Monetary Policy Committee released by the Bank of Korea on the 29th of last month, Monetary Policy Committee member Jang Yong-seong expressed concern over the rapid rise in real estate prices in some metropolitan areas and the resulting expansion of household debt, submitting a minority opinion in favor of maintaining the rate. Yongsan is revealing its frustrated inner thoughts. A presidential office official pointed out, "If there is a minority opinion now, it should be for a 'cut,' not a 'freeze.'"

While the inflation rate has stabilized rapidly, exports are sluggish, domestic demand is weak, and considering the high delinquency rates in some vulnerable sectors, the environment is sufficiently prepared for an interest rate cut. Another presidential office official said, "The Bank of Korea lowered its growth forecast for this year to 2.2?2.3% from the previous 2.4%, didn't it? Being passive about cutting rates can only fuel the 'missed opportunity for a rate cut' argument."

However, the presidential office is not officially expressing these complaints. Earlier in August, the presidential office unusually expressed regret over the Bank of Korea's decision to 'freeze' the base interest rate, sparking controversy over government interference. It is understood that they want to avoid unnecessary misunderstandings. While stating that "monetary policy decisions are the Bank of Korea's exclusive authority," they are trying to refrain from commenting on the direction of interest rates, but dissatisfaction and regret are sensed regarding the current situation of considering the freeze option.

Bloomberg economist Kwon Hyo-seong said, "With the won-dollar exchange rate rising rapidly and many variables such as the U.S. presidential election and the Federal Reserve's interest rate decisions, the Bank of Korea has no choice but to be cautious in its interest rate decisions."

Bank of Korea Governor Lee Chang-yong is responding to lawmakers' questions during the audit of the Ministry of Economy and Finance and the Bank of Korea at the Planning and Finance Committee of the National Assembly held on November 29. Photo by Kim Hyun-min