Board Members Express Support for Restrictive Monetary Policy
In the minutes of the Bank of Korea’s (BOK) meeting held on January 11, it was revealed that five out of the six board members believe that a restrictive monetary policy should be maintained for some time. Their objective is to bring inflation down to the target rate of 2%, given the persistent uncertainties in the supply-side of the economy. This view aligns with the BOK’s decision to keep its benchmark rate at 3.50% for the eighth consecutive month, as mentioned in the minutes. The consensus among the 38 economists surveyed by Reuters accurately predicted this outcome.
Inflation Expectations and Policy Outlook
Consumer inflation in South Korea eased for a second consecutive month in December, reaching 3.25%, which was below market expectations. This aligns with the policymakers’ anticipation that price pressures will gradually ease throughout 2024. As a result, analysts expect the BOK to initiate rate cuts in the third quarter of the year. However, given the softening of price pressures, some analysts are speculating that the central bank may begin easing its monetary policy earlier than initially anticipated.
Concerns over Project Financing Loans and Sector-Specific Support Measures
While discussing the country’s economic outlook, one board member highlighted concerns regarding project financing loans and the ongoing debt crisis at Taeyoung Engineering & Construction, a construction company. However, this board member stressed the importance of tackling any potential risks in the sector through targeted support measures instead of exclusively relying on monetary policies. In conclusion, the BOK’s minutes indicate the consensus among board members regarding the need for continued restrictive monetary policy to achieve the inflation target. However, analysts have differing opinions, with some forecasting earlier rate cuts amidst the easing of price pressures. Additionally, concerns over project financing loans in the construction sector prompt discussions around alternative support measures beyond monetary policies.