Foreboding economic forecast looms due to political instability, according to Bank of Korea's head's warning.
In the heart of Seoul, government bigwigs gathered for a discussion. Financial Supervisory Service Gov. Lee Bok-hyun, Bank of Korea Gov. Rhee Chang-yong, former Finance Minister Choi Sang-mok, and Financial Services Commission Chairman Kim Byoung-hwan were all present [YONHAP].
Here's a lowdown on what's been happening with the Bank of Korea (BOK). Despite the ongoing uncertainties,globally and domestically, they've kept their benchmark interest rate steady at 2.75% since drawing the brakes in late 2022 [1][2][3]. The main reasons for this latest decision? External factors such as the rollercoaster U.S. tariff policies, volatile exchange rates, and domestic issues like household debt risks and potential fiscal stimulus post-June presidential elections [1][2].
Now, let's delve into the key policy considerations. The BOK hinted at potential easing in 2025, with experts predicting 25–75 basis points of cuts by year-end [1]. Goldman Sachs even suggests 25bp reductions in May and August, depending on the progress of tariff negotiations and the timing of fiscal stimulus [1].
However, the weak Q1 2025 economic performance and the deteriorating global trade have left the BOK a bit concerned. Despite stable March inflation (2.1% headline, 1.9% core), the Ministry of Economy and Finance and BOK project 2025 GDP growth slightly below 2%, with concerns arising from tariff disputes and energy price volatility [4].
Alright, let's talk about the challenges. Despite the dovish BOK tilt, major banks like Shinhan and Hana are facing record-high loan-deposit spreads (1.38–1.55 percentage points) because of regulatory caps on loan rate declines. This is putting more pressure on consumers' debt burdens[5].
Amidst all this, the BOK is keeping a watchful eye on policy coordination, particularly focusing on the fiscal stimulus post-election and U.S. trade negotiations, which could dictate the pace of monetary easing [1][4]. Governor Rhee Chang-yong's recent communications suggest a careful dance between boosting growth and maintaining financial stability, with the May economic forecast update likely to set the easing path [2][4].
- The government officials gathered in Seoul discussed international finance and business, including the Bank of Korea's (BOK) interest rate and economic projections.
- The BOK has kept its benchmark interest rate steady at 2.75% since late 2022, despite uncertainties in both domestic and global markets.
- Experts predict potential easing by the BOK in 2025, with possible 25–75 basis points of cuts by year-end, and Goldman Sachs suggesting 25bp reductions in May and August.
- The BOK projects 2025 GDP growth slightly below 2%, due to concerns about tariff disputes and energy price volatility.
- Major Korean banks are facing record-high loan-deposit spreads because of regulatory caps, putting more pressure on consumers' debt burdens.
- The BOK is closely monitoring policy coordination, particularly the fiscal stimulus post-election and U.S. trade negotiations, which could affect the pace of monetary easing.
