Bank Of Korea Cuts Key Rate For First Time In More Than 4 Years
10 Octubre 2024 - 9:57PM
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The Bank of Korea lowered its base rate for the first time in
more than four years on Friday, in order to stimulate economy as
inflation weakened to the lowest since early 2021 and household
debt began to slow on tight macroprudential policies. The Monetary
Policy Board headed by Rhee Chang Yong decided to cut the Base Rate
by 25 basis points to 3.25 percent from 3.50 percent.
The board judged that it is appropriate to slightly moderate the
restrictive monetary policy and examine the impact of this going
forward. However, one member Chang Yongsung voted to maintain the
base rate at 3.50 percent. The reduction came after holding the
policy rate for thirteen consecutive meetings and marked the first
cut since May 2020.
Rhee said that it is fine to see today's decision as a hawkish
cut.
In September, consumer price inflation weakened to 1.6 percent,
which was the lowest since February 2021, largely due to the sharp
fall in petroleum prices and the base effect.
The bank forecast inflation to fall slightly below the previous
forecast of 2.5 percent this year due to downward pressures from
supply side factors. Meanwhile, core inflation is projected to
remain stable at around 2 percent.
In the second quarter, the economy had contracted 0.2 percent on
weaker consumption and investment.
Policymakers observed that uncertainties surrounding the 2.4
percent economic growth outlook for this year and 2.1 percent for
2025 have heightened compared to August due to delayed recovery in
domestic demand.
The bank also said that housing prices in the Seoul area and
household debt growth are anticipated to gradually slow due to the
effects of tightened macroprudential policies.
Capital Economics' economist Gareth Leather said with growth
struggling and inflation below target, the bank will resort to more
easing over the coming months.
ING economist Min Joo Kang said a November rate cut is off the
table and the likely time for the next reduction will be March.
As BoK seems to be well aware of the risks of rate cuts in the
face of rising housing debt, it will be a while before the BoK
takes further easing steps, the economist noted.
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