Bank of Korea: "Domestic Recovery Sluggish and Export Slowdown Expanding"... Concerns of Low Growth Realized [Monetary Policy Direction Full Text]
- Input
- 2025-05-29 10:39:39
- Updated
- 2025-05-29 10:39:39
■ Bank of Korea lowers base rate to 2.50% per annum ■
"Growth rate expected to decrease significantly due to tariff impact this year
Uncertainty in future growth path high... Maintain easing stance
Determine pace of reduction while checking financial stability such as household debt"
"Growth rate expected to decrease significantly due to tariff impact this year
Uncertainty in future growth path high... Maintain easing stance
Determine pace of reduction while checking financial stability such as household debt"
On this day, the Bank of Korea lowered this year's economic growth rate from the initial 1.5% to 0.8%, stating, "The domestic economy continued its sluggish trend in April following the negative growth in the first quarter due to delays in domestic recovery such as consumption and construction investment and export slowdown." Regarding the future outlook, it was stated that "domestic demand will gradually improve, but the pace will be slow, and the slowdown in exports is expected to expand due to the impact of U.S. tariffs." The Bank of Korea's adjustment of the annual forecast by more than 0.7 percentage points is the first time in five years since the COVID-19 pandemic in August 2020, when the forecast for that year was lowered by 1.1 percentage points from -0.2% to -1.3%.
Regarding prices, it was predicted that the stable trend around 2% will continue as the upward pressure from the increase in prices of processed foods and services is offset by the decline in international oil prices and low demand pressure. The Bank of Korea predicted that this year's consumer price inflation rate will be 1.9%, which is in line with the February forecast (1.9%), and the core inflation rate will slightly exceed the previous forecast (1.8%) at 1.9%.
There was concern about household debt. This is due to concerns about the potential expansion of household debt due to the easing rate stance. Regarding the won-dollar exchange rate, it was pointed out that although it has recently declined due to the easing of trade conflicts and the strength of Asian currencies, it is still necessary to be cautious due to high volatility.
The following is the full text of the monetary policy direction on May 29.
□ The Monetary Policy Committee decided to operate the monetary policy by lowering the Bank of Korea's base rate from the current level of 2.75% to 2.50% until the next monetary policy direction decision. Despite continued vigilance over the increase in household loans and the expansion of volatility in the foreign exchange market, it was judged appropriate to further lower the base rate to alleviate downward pressure on the economy as the growth rate is expected to decrease significantly.
□ The global economy is expected to slow down due to the impact of high tariff rates, although global trade conflicts have eased somewhat, and the uncertainty of the price path is also high. In the international financial market, the risk aversion sentiment, which had been greatly expanded, has eased, leading to a rebound in stock prices, but the U.S. long-term treasury yield has risen due to continued policy uncertainty in the U.S. and concerns about fiscal deficits, and the dollar index has risen slightly and then retreated. The global economy and international financial markets are expected to be affected by tariff negotiations between the U.S. and major countries, changes in major countries' monetary policies, and geopolitical risk developments.
□ The domestic economy continued its sluggish trend in April following the negative growth in the first quarter due to delays in domestic recovery such as consumption and construction investment and export slowdown. Employment continues to increase in total employment, but major industries such as manufacturing continue to decline. Domestic demand is expected to gradually improve, but the pace will be slow, and the slowdown in exports is expected to expand due to the impact of U.S. tariffs. Accordingly, this year's growth rate is expected to be 0.8%, which is significantly lower than the February forecast (1.5%). The future growth path is evaluated to have very high uncertainty related to the development of trade negotiations, government economic stimulus measures, and major countries' monetary policy directions.
□ Domestic prices continued a stable trend, with consumer prices and core inflation rates (excluding food and energy indices) showing 2.1% in April. The short-term expected inflation rate fell to 2.6% in May from 2.8% in the previous month. In the future, the inflation rate is expected to maintain a stable trend around 2% as the upward pressure from the increase in prices of processed foods and services is offset by the decline in international oil prices and low demand pressure. Accordingly, this year's consumer price inflation rate is expected to be 1.9%, which is in line with the February forecast, and the core inflation rate is expected to slightly exceed the previous forecast (1.8%) at 1.9%. The future price path is expected to be affected by domestic and international economic trends, exchange rate and international oil price movements, and government price stabilization measures.
□ In the financial and foreign exchange markets, major price variables fluctuated mainly due to external factors such as tariff negotiations between the U.S. and major countries. The won-dollar exchange rate continued high volatility, declining due to the easing of trade conflicts and the strength of Asian currencies, and the long-term government bond yield rebounded due to the rise in U.S. long-term interest rates, but the rise was limited compared to major countries. Stock prices rose due to the easing of corporate performance concerns. Housing prices continued to rise in Seoul and decline in other regions, and the scale of household loan growth expanded due to increased housing transactions in February and March.
□ The Monetary Policy Committee will operate the monetary policy to stabilize the inflation rate at the target level while monitoring the growth trend in the medium term and paying attention to financial stability. The domestic economy is expected to see a significant decrease in the growth rate this year while the inflation rate continues its stable trend, and the uncertainty of the future growth path is high. From the perspective of financial stability, it is necessary to pay attention to the potential expansion of household debt growth due to the continued financial easing stance and the high volatility of the foreign exchange market. Therefore, future monetary policy will continue the rate cut stance to alleviate downside risks to growth, while closely monitoring changes in domestic and external policy conditions and the resulting price trends and financial stability situations to determine the timing and pace of further base rate cuts.
□ The global economy is expected to slow down due to the impact of high tariff rates, although global trade conflicts have eased somewhat, and the uncertainty of the price path is also high. In the international financial market, the risk aversion sentiment, which had been greatly expanded, has eased, leading to a rebound in stock prices, but the U.S. long-term treasury yield has risen due to continued policy uncertainty in the U.S. and concerns about fiscal deficits, and the dollar index has risen slightly and then retreated. The global economy and international financial markets are expected to be affected by tariff negotiations between the U.S. and major countries, changes in major countries' monetary policies, and geopolitical risk developments.
□ The domestic economy continued its sluggish trend in April following the negative growth in the first quarter due to delays in domestic recovery such as consumption and construction investment and export slowdown. Employment continues to increase in total employment, but major industries such as manufacturing continue to decline. Domestic demand is expected to gradually improve, but the pace will be slow, and the slowdown in exports is expected to expand due to the impact of U.S. tariffs. Accordingly, this year's growth rate is expected to be 0.8%, which is significantly lower than the February forecast (1.5%). The future growth path is evaluated to have very high uncertainty related to the development of trade negotiations, government economic stimulus measures, and major countries' monetary policy directions.
□ Domestic prices continued a stable trend, with consumer prices and core inflation rates (excluding food and energy indices) showing 2.1% in April. The short-term expected inflation rate fell to 2.6% in May from 2.8% in the previous month. In the future, the inflation rate is expected to maintain a stable trend around 2% as the upward pressure from the increase in prices of processed foods and services is offset by the decline in international oil prices and low demand pressure. Accordingly, this year's consumer price inflation rate is expected to be 1.9%, which is in line with the February forecast, and the core inflation rate is expected to slightly exceed the previous forecast (1.8%) at 1.9%. The future price path is expected to be affected by domestic and international economic trends, exchange rate and international oil price movements, and government price stabilization measures.
□ In the financial and foreign exchange markets, major price variables fluctuated mainly due to external factors such as tariff negotiations between the U.S. and major countries. The won-dollar exchange rate continued high volatility, declining due to the easing of trade conflicts and the strength of Asian currencies, and the long-term government bond yield rebounded due to the rise in U.S. long-term interest rates, but the rise was limited compared to major countries. Stock prices rose due to the easing of corporate performance concerns. Housing prices continued to rise in Seoul and decline in other regions, and the scale of household loan growth expanded due to increased housing transactions in February and March.
□ The Monetary Policy Committee will operate the monetary policy to stabilize the inflation rate at the target level while monitoring the growth trend in the medium term and paying attention to financial stability. The domestic economy is expected to see a significant decrease in the growth rate this year while the inflation rate continues its stable trend, and the uncertainty of the future growth path is high. From the perspective of financial stability, it is necessary to pay attention to the potential expansion of household debt growth due to the continued financial easing stance and the high volatility of the foreign exchange market. Therefore, future monetary policy will continue the rate cut stance to alleviate downside risks to growth, while closely monitoring changes in domestic and external policy conditions and the resulting price trends and financial stability situations to determine the timing and pace of further base rate cuts.
eastcold@fnnews.com Kim Dong-chan Reporter