Welcome to Within The Frame, where we bring today’s most pressing issues across the globe, I’m Kim Mok-yeon.
In a surprising move, South Korea’s central bank has cut its benchmark interest rate by 25 basis points to 3%, citing rising downward pressure on economic growth.
The decision, announced after the last policy meeting of the year, comes amid stagnant GDP growth and a slowdown in exports.
Although inflation remains stable and household debt growth has eased, the Bank of Korea is focused on boosting economic activity, which has been weaker than expected.
The rate cut follows a similar move last month and is aimed at stimulating consumption and investment.
Some analysts however warn it could exacerbate risks such as higher household and corporate debt or a potential housing market bubble.
The central bank has also revised its growth forecasts for 2024 and 2025, lowering projections to 2.2% and 1.9%, respectively.
For more on this, we invite Song Soo-young, a College of Business and Economics professor at Chung-Ang University. Welcome to the program, Professor.
Also joining us is Hwagyun Kim, Professor of Banking and Finance at Texas A&M University’s Mays Business School.
Great to have you, Professor.
1. (SONG) Let’s begin with Professor Song, so the Bank of Korea lowered its benchmark interest rate for the second consecutive month, breaking expectations. What do you think is the reason behind this decision?
2. (Kim) Professor Kim, so it looks like the rate cut seems to signal that the domestic economy is in a weaker state.
In fact, the Bank of Korea revised its growth forecast for next year from 2.1% to 1.9%. This is lower than the IMF’s forecast of 2.0%.
What are the downside risks to the economy that led the Bank of Korea to lower its growth forecast?
3. (SONG) With household debt and housing prices in the Seoul metropolitan area showing signs of easing in the fourth quarter, there are concerns that the rate cut might provide a stimulus. How do you view this situation Professor Song?
4. (SONG) Despite the Bank of Korea’s rate cut last month, the interest rates on household loans from banks have continued to rise for three consecutive months. What do you expect for the movement of bank loan rates following this latest rate cut?
5. (Kim) With the Bank of Korea’s second consecutive rate cut, the interest rate gap between Korea and the U.S. has widened from 1.50% to 1.75%. Professor Kim, how do you think this will affect the exchange rate, the value of the Korean won, and the market in general?
6. (SONG) In October, five out of six members of the Monetary Policy Committee agreed that the benchmark rate should remain unchanged for three months, but now there are differing views on whether further rate cuts should be considered. What is your outlook, Professor Song? And why do you think the internal opinion of the committee has changed?
7. (Kim) Attention is also on the upcoming U.S. Federal Open Market Committee (FOMC) meeting next month. The key U.S. economic indicators, including the November Consumer Price Index (CPI) and Producer Price Index (PPI), will be released on December 11 and 12 (local time). Professor Kim, what’s your forecast and How do you expect these reports to impact the FOMC’s decision in December?
8. (SONG) It’s largely expected that the U.S. Federal Reserve will keep its interest rate unchanged at the final FOMC meeting in December. Do you agree with such speculation Professor Song?
9. (Kim) There are growing concerns that President Trump’s trade policies might influence the Federal Reserve’s actions. What’s your view on this?
10. (SONG) On the other hand, with economic forecasts darkening due to risks such as the “Trump risk,” there are calls for the South Korean government to take action in terms of fiscal and monetary policies. What measures do you think are necessary?
(KIM/SONG) How much of an impact do you think global factors, like oil prices or ongoing geopolitical tensions, will have on South Korea’s economic recovery in the near term?
source : https://www.arirang.com/news/view?id=278518
