Defying some expectations, the Bank of Korea Monetary Policy Committee froze the country’s policy rate at 1.75% on Friday.
BOK Governor Lee Ju-yeol mentioned that some had raised the possibility of a rate cut due to the surprise negative growth the economy suffered in the first quarter amid the intensifying trade dispute between the US and China. However, the prevailing view of the board was that a rate cut is not to come anytime soon.
In April, the Monetary Policy Committee unanimously decided to maintain the policy rate, but at this month’s meeting, one member called for a rate cut. At a press conference, Lee shot that down. “The minority opinion is just a minority opinion, and it is too much to see it as a signal of monetary policy,” he said.
A frothy real estate market and heavy household debt are two key factors obviating a rate cut.
A rise in housing prices has calmed down amid rigid government measures to curb demand, but expectations of a rebound in real estate prices are spreading. Lee noted that household debt growth has slowed, but its still “quite excessive.”
He went on to say that he expected the economy to recover on the back of improving exports and investment, and an expansionary fiscal policy.
Asked if there is a possibility of lowering the central bank’s GDP growth forecast for this year, which currently stands at 2.5 percent, Lee said only, “The economy is expected to improve in the second half.”
However, he added that the BOK would be monitoring external conditions.