The Governor of the Bank of Korea (BOK), Rhee Chang-yong, has cautioned against overly aggressive monetary easing, citing the potential for renewed property market inflation and heightened foreign exchange volatility. His remarks were delivered in a speech marking the central bank’s 75th anniversary.
Rhee emphasised that while South Korea’s domestic economy remains subdued, excessive reliance on accommodative policy could have unintended consequences. “If we rely too much on economic stimulus policies out of urgency, there may be greater side effects later on. For example, if we cut the base interest rate excessively, there is a high risk that it will lead to a rise in real estate prices,” he stated.
The warning follows the Bank of Korea’s recent decision to reduce its base interest rate by 25 basis points to 2.5 per cent on 29 May. The move, which was widely anticipated, marked the fourth rate cut in the current easing cycle. The central bank cited soft domestic consumption and the impact of US trade tariffs as key reasons behind the adjustment.
The rate cut also aligns with the broader fiscal stance of the newly inaugurated President Lee Jae-myung, whose administration is preparing a second supplementary budget this year aimed at stimulating economic growth.
Rhee further noted that currency market instability remains a concern, especially in light of the divergence between domestic and US interest rate trajectories. “The gap between domestic and foreign interest rates may widen further as the US Federal Reserve adjusts the pace of its interest rate cuts, and uncertainty surrounding the results of trade negotiations with major countries may increase, leading to increased volatility in the foreign exchange market,” he added.
-Reuters
