Bank of Korea Lowers Base Interest Rate for Second Consecutive Month

The Monetary Policy Committee (MPC) of the Bank of Korea (BOK) has decided to lower the base interest rate by 0.25 percentage points from the current 3.25% to 3% on November 28. This marks the second consecutive month of rate cuts, following a similar reduction in October. The decision aims to stimulate economic growth amid challenging global and domestic economic conditions.

BOK Governor Rhee Chang-yong, who presided over the MPC meeting, said the interest rate cut is expected to increase the economic growth rate by 0.07 percentage points. Additionally, the central bank revised this year's economic growth forecast for Korea from 2.4% to 2.2% and next year's forecast from 2.1% to 1.9%.

During a press conference, Rhee highlighted significant changes since the base interest rate cut in October. He noted, "There were concerns about the uncertainty of the US presidential election results, but the 'Red Sweep' decision exceeded expectations." He also pointed out that export volumes in the third quarter decreased more than anticipated, attributing this decline to structural factors such as intensified export competition rather than temporary factors.

The MPC's decision saw four out of six members, excluding Governor Rhee, voting for the rate cut, while two members voted to maintain the rate. Looking ahead, three committee members suggested maintaining the annual rate at around 3% for the next three months, while the other three members proposed considering the possibility of lowering the rate below 3%. This marks a shift from October, when five out of six committee members believed the base interest rate should be maintained at 3.25% for the next three months.

Rhee explained the differing perspectives within the committee, stating, "Three committee members believe that considering the neutral interest rate level of our economy, the pace should be gradually adjusted with additional room for cuts." He added, "The other three members believe that due to high uncertainties in both domestic and international economic conditions and growth forecasts, the possibility of further cuts should be left open depending on future economic outlook changes."

Specific measures for managing exchange rate volatility mentioned by Rhee include expanding the scale of foreign exchange swaps and cooperating with the National Pension Service. He assured that foreign exchange reserves are sufficient and that there are many measures to manage exchange rate volatility.

Addressing recent political discussions about his potential appointment as prime minister, Rhee stated, "I will faithfully perform my duties as the governor of the Bank of Korea."

The decision to lower the base interest rate comes amid a backdrop of global economic uncertainty and declining export volumes, which are critical to South Korea's export-driven economy. The MPC's actions reflect a cautious approach to stimulating economic growth while managing the complexities of both domestic and international economic conditions. As the Bank of Korea navigates these challenges, the focus remains on ensuring financial stability and fostering sustainable economic growth.