FOMC Members All Support February Rate Cut... "Domestic Economy Weaker Than Expected"

Bank of Korea Releases February MPC Minutes
"Rate Cut Effects May Be Limited... Continuous Monitoring Needed"

As of last month, with the base interest rate lowered to 2.75%, the members of the Bank of Korea's Monetary Policy Committee (MPC) focused on the "worse-than-expected sluggish economy."

While the members expected inflation to maintain a stable trend, they emphasized the increasing downward pressure due to U.S. tariff policies and unanimously supported the base rate cut. However, they also expressed the view that, given the current high economic uncertainty, the effect might be limited, so the transmission channels and effects should be continuously monitored.

Lee Chang-yong, Governor of the Bank of Korea, is striking the gavel at the Monetary Policy Committee plenary meeting held at the Bank of Korea headquarters in Jung-gu, Seoul, on the morning of the 25th. 2025.02.25 Photo by Joint Press Corps

According to the minutes of the Monetary Policy Meeting held on February 25, released by the Bank of Korea on the 18th, all six members except Governor Lee Chang-yong supported the base rate cut, citing concerns over economic sluggishness as the reason.

One member stated, "With a significant downward revision of the economic growth forecast, the necessity for a rate cut has increased," and added, "It is desirable to improve economic sentiment and growth trends through a base rate cut."

Another member said, "Inflation is close to the target level, so the inflation burden is relatively low, but considering the economic situation significantly below potential growth amid a highly uncertain domestic and external environment, the key now is to restore the severely contracted economic sentiment, and policy priorities should be placed accordingly."

Another member also emphasized the need to respond to downward economic pressure, saying, "The domestic economy is showing visible sluggishness centered on domestic demand, so there is an increased need to focus more on economic recovery in conducting monetary policy."

However, some MPC members also expressed opinions that the effect of the base rate cut might be limited. One member said, "Given the high uncertainty in domestic and external environments and the weakened economic sentiment of households and businesses, the extent to which a base rate cut can drive the real economy and growth may be weaker than usual."

He added, "After the lifting of land transaction permit zones in some areas of Seoul, the housing market could overheat, especially in leading areas. It is necessary to prepare for the risk that changes in market conditions, such as financial easing, could further stimulate the housing market and worsen financial imbalances."

Another member said, "We must continue to pay attention to the impact of rate cuts on financial stability, including household debt and housing prices." Some members urged that, since the growth-enhancing effects may vary depending on factors causing long-term interest rate declines, it is necessary to continuously analyze and monitor the transmission channels and effects of the base rate cut.

Variables going forward include the development of global trade policies, volatility in the foreign exchange market, and the pace of household debt increase. One member said, "We should determine the direction and pace of monetary policy while checking changes in the external environment, the effects of previous base rate cuts, additional easing capacity, price variables such as exchange rates, and real economic indicators."

Another member stated, "Whether to further cut the base rate in the future should be decided cautiously and flexibly by thoroughly analyzing the impacts of previous rate cuts on the real economy, financial markets, and foreign exchange markets, and closely monitoring changes in domestic and international economic conditions."