(Bloomberg) -- Bank of Korea Governor Rhee Chang-yong dismissed the idea of faster interest rate cuts to boost consumption, reiterating his view that the central bank will be cautious in setting the pace of easing after last week’s long-awaited policy pivot.
Rate cuts are “no panacea” and there are other structural headwinds that weigh on spending, Rhee told lawmakers on Monday, during a parliamentary audit of the central bank. He didn’t say what those headwinds are.
While Rhee acknowledged the potential for rate cuts to facilitate consumption, his comments reinforce the view that the BOK will tread cautiously after cutting the benchmark rate by 25 basis points to 3.25% on Friday. It also suggests that financial stability remains a greater concern for the board than consumption, after a hotter-than-expected housing market drove up private debt and delayed the policy pivot.
“He’s clearly aware the BOK can help consumption with rate cuts, but he’s saying he’s just not going to rush it,” said Cho Yong-gu, a fixed-income strategist at Shinyoung Securities. Cho added Rhee has sought to avoid portraying consumption as a primary factor driving the BOK’s decision to ease policy.
South Korea’s government has implemented a slew of measures to curb household debt and property prices in recent months, giving the central bank the flexibility to lower interest rates. Shoring up consumption has been a key focus for the government this year, even as exports emerged as a main driver for economic growth.
Rhee said Friday’s pivot was in response to slowing inflation, which dropped below the central bank’s 2% target in September, and to avoid hampering economic growth, adding there was no need to keep the rate restrictive too long.
The rate cut also marked the latest easing in a global wave of central banks changing course to put more focus on safeguarding economic momentum after inflationary pressure cooled.
The BOK will hold this year’s last rate-setting meeting on Nov. 28. Five board members see the board keeping the rate steady at 3.25% until January barring major changes in economic conditions while one is open to another cut during the same period, according to Rhee.
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