BOK’s Rhee says need for further rate cuts is higher, downside risk to economy has risen

Earlier:

• Bank of Korea leaves rate unchanged at 3% vs. cut to 2.75% expected
• BOK plans to expand the cap on temporary special loans for small and medium businesses

Bank of Korea Governor Rhee Chang-yong press conference no:

• decision was not unanimous
• need for further rate cuts is higher now that the downside risk to economic growth has risen
• The dollar-won exchange rates are considerably higher than South Korea’s economic fundamentals.
• All board members agreed that a rate cut would be necessary, but they considered the fluctuations in dollar-won exchange rates due to political turmoil.
• Board member Shinn dissented
• Board member Shin stated that while FX rates are a concern, a rate cut remains appropriate to support growth.
• BOK Governor Rhee noted that six board members are open to rate cuts within the next three months.
• Rhee emphasized that inflation targeting remains central to monetary policy decision-making.
• He suggested it would be prudent to wait until domestic political turmoil stabilizes and there is greater certainty from the new U.S. administration before altering policies.
• Rhee also acknowledged that political turmoil is affecting South Korea’s economy.

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This article was written by Eamonn Sheridan at www.forexlive.com.