The Bank of Korea (BOK) lowered its benchmark interest rate by 25 basis points to 2.5% on May 29, citing weaker-than-expected economic growth and signaling the possibility of further rate cuts in the near term.
At a press briefing following the monetary policy decision, BOK Governor Rhee Chang-yong stated, “We see a possibility that the total rate cut this cycle could be larger than initially expected, given the recent slowdown in growth.”
The central bank did not disclose a specific terminal rate, and Governor Rhee cautioned against providing forward guidance, noting the potential for market misinterpretation.
“It’s difficult to say how many more cuts may come. We’ll assess the data and proceed with caution,” he said.
The rate decision was unanimous among the six-member Monetary Policy Board. Despite ongoing concerns about household debt and exchange rate volatility, the board pointed to sustained price stability and significant downward revisions in growth forecasts to justify the move.
Among the board members, four supported the possibility of additional rate cuts within the next three months, while two preferred holding the rate steady at 2.5% during that period.
Those advocating for further easing cited weaker-than-anticipated economic conditions and the need to support domestic activity.
However, Governor Rhee also flagged concerns over rising household debt, particularly in the Seoul real estate market.
“Injecting too much liquidity could fuel asset price bubbles rather than stimulate real economic growth,” he warned, emphasizing the importance of policy coordination with the new administration.
Asked why the BOK opted for a standard 25 basis point cut instead of a larger move, Rhee explained that an aggressive rate cut could risk overheating the housing market, as witnessed during the pandemic period.
The BOK also sharply revised its GDP forecast for 2024, cutting its growth outlook from 1.5% to 0.8%. Rhee noted that this projection assumes no contribution from net exports and attributes all growth to domestic demand.
For 2025, the central bank expects a negative contribution from exports and a modest rebound in consumption and construction.
The governor concluded by saying that while long-term rates have already declined significantly, the central bank will continue monitoring financial conditions closely and adjust its stance as necessary.
