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BOK Monetary Policy Committee, “Rate Cut Premature…Recession Allows For ‘Cleansing Effect’”

NSP NEWS AGENCY, By Soon-ki Lee and Soo-in Kang, 2024-01-31 21:32 ENX7
#BOK #BaseRate #Freezing

(Seoul=NSP NEWS AGENCY) = At the first monetary policy direction meeting of the year, the Bank of Korea’s Monetary Policy Committee agreed that “the need for further tightening of the base rate has decreased.” However, they expressed the opinion that lower interest rates may have side effects because the risk of rising prices may increase in a situation where the proportion of household debt is still high.

According to the minutes of the BOK’s Monetary Policy Committee(1st meeting in 2024) on the 31st, most members expressed the opinion that it is appropriate to freeze the base rate at the current 3.5% level. No members mentioned the need for austerity.

“The consumer price inflation rate continued to decline to 3.1% in the third quarter of last year, but rebounded slightly to 3.4% in the fourth quarter,” some members of the Monetary Policy Committee said, “This was due to supply-side shocks such as the disappearance of the base effect and rising oil and agricultural prices, and the moderate decline is expected to continue in the absence of further supply shocks.”

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However, it was still premature to cut rates. “The current rate of consumer price inflation is not only still well above the inflation target of 2 per cent, but also quite far from the level expected at the end of this year,” some members of the Monetary Policy Committee said. “We believe that there is a potential upside risk to the inflation rate due to uncertainties, the impact of the government’s early fiscal execution in the first half of the year, the rate at which accumulated supply shocks spread to prices, and geopolitical risks.”

They argued that the pain caused by high interest rates should be compensated for with micro-policies, not rate cuts, and also mentioned the need for restructuring.

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