Lee Chang-yong "5 Monetary Policy Committee Members Should Keep Open the Possibility of Final Interest Rate at 3.75%" (Update)

by Seo Sojeong

Published 11 Apr.2023 12:13(KST)

Updated 11 Apr.2023 12:19(KST)

"Excessive Expectations for the End of the Market's Interest Rate Hike"

Among the six Monetary Policy Committee members excluding the Governor of the Bank of Korea, five expressed the view that the possibility of the terminal interest rate being 3.75% should be kept open.

On the 11th, after the Monetary Policy Committee decided to keep the base rate at 3.5%, Governor Lee Chang-yong said at a press conference, "Five committee members believed that the possibility of maintaining the rate at 3.75% for the time being should be kept open," adding, "One member thought it was appropriate to keep it steady at 3.5%."

Governor Lee elaborated that there are two reasons why five committee members suggested keeping the possibility of 3.75% open.

He said, "Although the inflation slowdown trend will continue, we need to consider the significant uncertainty regarding the impact of additional production cuts by oil-producing countries on international oil prices and the effect of public utility fee hikes on the inflation path in the second half of the year," adding, "Secondly, we need to observe further how major countries and the U.S. Federal Reserve (Fed) will conduct monetary policy following the Silicon Valley Bank (SVB) incident."

He also emphasized, "The current market expectations for the end of rate hikes and rate cuts are excessive," and "It is inappropriate to mention rate cuts until inflation converges to the medium- to long-term target."

Governor Lee stated, "The current interest rate level can be explained econometrically as being restrictive to the real economy, meaning it is above neutral," but he conveyed that the consensus among committee members is that market expectations for rate cuts are an overreaction. He added, "Short-term rates, such as the 90-day rate, have fallen too much because expectations have taken hold that rates will be lowered due to economic slowdown by the end of this year," but also noted, "(However) the economy remains highly uncertain."

[Image source=Yonhap News]