The Bank of Korea (BOK) opened an unsurprising Monetary Policy Committee on August 14 and dropped the standard interest rate from 2.50 percent per annum to 2.25 percent. It has been 15 months since the interest rate declined by 0.25 percent point last May.
This has already been expected in the market. Political circles, including the government, pressured BOK to lower the standard interest rate in order to boost the economy. Especially, Choi Kyung-hwan, the deputy prime minister for economic affairs and the minister of strategy and finance, publicly requested BOK to support the government policies by lowering the interest rate.
Lee Ju-yeol, governor of BOK, expected to impose positive effect onto the Korean economy by integrating the government’s economic and monetary policies. Thanks to the decline in interest rates this time, the economic revival policies of the Deputy Prime Minister for Economic Affairs Choi Kyung-hwan are expected to pick up momentum.
Governor Lee reconfirmed the stance on his previous economic forecast, saying, “Economic growth of 3.8 percent per annum means a gradual recovery of the economy.” He implied that this interest rate decision includes economic and political judgments.
He explained that the main reasons for lowering the interest rate are domestic stagnation due to the Sewol crisis and increasing downward risks.
Against some worries over potentially increasing household debt due to lowered interest rates, which is a hot-button issue for the Korean economy, he emphasized that the situation is not that serious.
He said, “If the interest rate is dropped, household debt will definitely increase. However, considering the current economic conditions and population structure changes, an increase in household debt is not that serious in terms of financial stability.”