By Agencies
The Governor of the Bank of Korea, Rhee Chang-yong, cautioned on Thursday that “excessive” cuts to policy interest rates could trigger another surge in property prices and heighten volatility in currency markets, despite a sluggish domestic economy.
In remarks prepared for the bank’s 75th anniversary, Rhee stated, “If we rely too heavily on economic stimulus measures out of urgency, we may face significant side effects down the line.
For instance, aggressive cuts to the base interest rate pose a real risk of driving up real estate prices.”
His comments follow the bank’s decision to lower borrowing costs by a quarter percentage point to 2.5% on May 29, in response to the impact of U.S. trade tariffs and weak domestic consumption.
This latest cut marks the fourth in the current easing cycle and coincides with newly elected President Lee Jae-myung’s plans for substantial stimulus measures, including a second extra budget this year to stimulate growth.
Rhee’s concerns also reflect the recent volatility in currency markets. “As the U.S. Federal Reserve adjusts its pace of interest rate cuts, the gap between domestic and foreign interest rates may widen.
Additionally, uncertainty around trade negotiations with major countries could lead to increased fluctuations in the foreign exchange market,” he warned.
