Bank of Korea's Decision to Freeze Base Rate

In a recent Monetary Policy Committee meeting chaired by Rhee Chang-yong, the Bank of Korea decided to maintain the base rate at 3% annually. This decision was largely influenced by the current high exchange rate, which poses challenges to domestic prices and financial stability.

Understanding the High Exchange Rate

Rhee highlighted the significant impact of a strong U.S. dollar and political instability on the exchange rate. The won-dollar exchange rate saw a notable increase, with factors including the U.S. dollar's strength and political uncertainties contributing to this rise.

Impact on Economic Growth

The governor expressed concerns over the potential negative effects on South Korea's economic growth, citing a significant drop in domestic demand and consumption. The situation has led to adjustments in growth rate expectations for the last quarter of the previous year and raises concerns for the current year's economic performance.

Future Rate Cut Possibilities

Despite the decision to freeze the base rate, the committee did not rule out the possibility of a rate cut in the near future. Rhee noted that while all members agreed on the potential need for a rate cut considering the economic situation, only one member voiced a minority opinion favoring an immediate reduction.