[BOK Focus] Detected Changes in the Monetary Policy Committee, Key Variables to Watch at Year-End

Interest in Whether Minority Opinion Will Emerge by the End of This Month

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee plenary meeting held at the Bank of Korea in Jung-gu, Seoul, on October 19. Photo by Joint Press Corps

With the final Bank of Korea Monetary Policy Committee meeting of the year to decide the base interest rate just two weeks away, new variables surrounding monetary policy have emerged, heightening tension. On the 14th (local time), the U.S. Consumer Price Index (CPI) inflation rate was announced to be below market expectations, significantly boosting hopes for a U.S. interest rate cut next year, drawing attention to a possible shift in South Korea's monetary policy direction. Notably, last month, among the six Monetary Policy Committee members excluding the governor, one member mentioned the possibility of a rate cut, raising keen interest in whether differing opinions on future monetary policy will be formally expressed at the upcoming meeting on the 30th.

According to the financial industry on the 16th, the committee member who suggested that flexibility should be maintained to either raise or lower the base interest rate due to significant uncertainty in the three-month interest rate outlook at last month's meeting is presumed to be Shin Seong-hwan.

In the minutes of the Monetary Policy Committee released on the 7th, he cited downward pressure on the growth trajectory as a concrete reason to keep the possibility of a future rate cut in mind. Prior to last month's meeting, the sudden emergence of the war variable between Israel and the Palestinian armed group Hamas increased uncertainty and brought upward inflationary pressure to the forefront. However, if the war escalates further, global economic contraction cannot be ruled out, so the possibility of a rate cut should also be left open.

The committee member presumed to be Shin stated, "On the growth path, downside factors appear to dominate, such as the possibility of additional rises in international oil prices due to increased geopolitical risks, weakening private consumption recovery, and potential weakening of external demand due to prolonged tightening policies in major countries. However, depending on the pace of recovery in the global IT sector, there is a possibility that the outlook path could be revised upward, so uncertainty remains high." He added, "It is desirable to observe the future trends in domestic and international financial markets, growth, and inflation before deciding on additional tightening or easing."

He expressed a similar view in the minutes from the August Monetary Policy Committee meeting. He said, "We should carefully decide on the direction and magnitude of any further adjustments to the base interest rate while monitoring how growth, inflation, and domestic and international financial market conditions unfold compared to the forecast path." At that time, all committee members unanimously agreed to keep the base rate unchanged and maintained a hawkish stance by leaving open the possibility of a 3.75% hike in the future. However, reviewing the released minutes, the member presumed to be Shin mentioned the 'direction' of further adjustments to the base rate, implying that both upward and downward possibilities should be considered. Earlier, in the January monetary policy meeting this year, when the base rate was raised from 3.25% to 3.50%, Shin, along with former committee member Joo Sang-young, expressed a minority opinion favoring maintaining the current level of 3.25%. However, based on the minutes, the industry consensus is that it is unlikely Shin will formally propose a rate cut as a minority opinion at the end of this month’s meeting.

Some interpret the fact that one committee member mentioned the possibility of a rate cut at last month’s meeting as a preliminary move toward a pivot in monetary policy direction next year. Typically, the Bank of Korea signals upcoming policy shifts several months in advance through meeting minutes, and some believe that to prepare for a rate cut as early as the first half of next year, groundwork must be laid this year. However, with the prolonged high U.S. interest rates and growing concerns over household debt, the Bank of Korea is cautious about premature expectations of rate cuts, and there is significant opposition to this interpretation as premature. Amid ongoing debates over the timing of U.S. rate cuts next year, many believe it is too early for South Korea to establish an exit strategy first. Park Seok-gil, an economist at JP Morgan, said, "Looking at the October meeting minutes, the remarks by the member who seems to have advocated for a rate cut actually lean more toward a neutral stance. Given the uncertain market conditions, the argument is to consider both further tightening and easing, so interpreting this as support for a rate cut is still premature."

Monetary Policy Committee Member Park Chun-seop, a Storm Variable for Economic Chief

Park Chun-seop, a member of the Monetary Policy Committee, attending the Monetary Policy Committee meeting held at the Bank of Korea (photo right) / Photo by Joint Press Corps

Additionally, the possibility of a change in committee members has emerged as a storm variable toward the end of the year. Park Chun-seop, who joined the Monetary Policy Committee in April, is being strongly considered for the next Chief Presidential Secretary for Economic Affairs, raising cautious speculation that the November meeting could be his last. With the general election scheduled for April next year, a large-scale personnel reshuffle in the presidential office and government ministries is anticipated, and a thorough vetting process is currently underway. To run in the April 10 general election, preliminary candidate registration must be completed by November 12, and the resignation deadline for public officials is January 11 next year, making it highly likely that related personnel changes will occur by early next month.

Park, who was appointed to the committee on April 21 upon recommendation from the Financial Services Commission chairman, has a term lasting until April 20, 2027, with just over three years remaining, and has participated in only four base rate decisions so far (May, July, August, and October). The most recent case of a committee member leaving mid-term was Ko Seung-beom, who was nominated as Financial Services Commission chairman in August 2021. However, Ko had served as a committee member since 2016 and was the first to be reappointed since the 1998 revision of the Bank of Korea Act, making his mid-term departure during a second term different from Park’s situation. Kwon Hyo-seong, an economist at Bloomberg Korea, said, "If Park becomes the economic chief, there could be changes in future economic and monetary policies. Park has consistently expressed strong concerns about the rise in household loans and emphasized responses to household debt, so it is possible that the policy direction could be more tightening-oriented than that of the current Chief Presidential Secretary for Economic Affairs, Choi Sang-mok."

This content was produced with the assistance of AI translation services.