The Monetary Policy Committee members of the Bank of Korea pointed to economic sluggishness as the reason for lowering the base rate to 2.50% per annum last month. However, there was consensus that any further rate cuts should be cautiously considered while monitoring the overheating of the real estate market and the increase in household loans.
According to the minutes of the 10th Monetary Policy Committee meeting for 2025, held on May 29, which were released by the Bank of Korea on the 17th, the committee unanimously decided to lower the interest rate, excluding Bank of Korea Governor Lee Chang-yong.
Concerns about domestic sluggishness due to weakened private consumption and export slowdowns caused by tariff uncertainties from the Trump administration were pronounced. A commissioner noted, "It is expected that growth will be significantly lowered due to sluggish domestic recovery and export slowdowns from deteriorating trade conditions," adding, "There is a high level of uncertainty regarding the future growth path, including trade negotiations among major countries, changes in the global financial situation, and government stimulus measures."
Another commissioner stated, "While the government's expansion of fiscal spending, such as the supplementary budget, may slightly alleviate domestic sluggishness, the weakness in private consumption is largely due to not only cyclical factors but also structural factors such as aging, population decline, increasing household debt, and income polarization." They emphasized that "it is necessary to promote structural reform policies in conjunction with addressing economic conditions through monetary and fiscal policy."
Many assessed that the exchange rate, which had been a hindrance to lowering interest rates, has found stability. One commissioner remarked, "The won-dollar exchange rate continues to exhibit high volatility; however, it has decreased due to expectations of alleviating trade conflicts, and the conditions for obtaining foreign currency funds are generally stable," and added, "The risks from a financial stability perspective appear to be easing somewhat, primarily in the foreign exchange sector."
Another commissioner evaluated, "While the sensitivity of the exchange rate to the current account has weakened compared to the past, the decline in the exchange rate could exert downward pressure on prices. Considering that representatives of exporting companies mainly conclude contracts with subcontractors based on the won, the recent decline in the exchange rate is expected to positively impact domestic economic revitalization."
Monetary Policy Committee members echoed that the timing for any additional interest rate cuts should be decided by observing the increase in household loans. A commissioner stated, "Following the reassignment of land transaction approval zones, housing transactions have dropped, and the implementation of the third phase of the debt service ratio (DSR) is also planned, so the increase in household loans is expected to gradually slow down." However, they noted, "Amidst ongoing rises in housing prices in the Seoul region, expectations for price increases in preferred areas remain high, and there is considerable pent-up demand, so it is essential to remain alert to the implications of the monetary easing stance on household debt."
Another commissioner said, "Household debt has dramatically increased as expected during April and May this year, and the continued trend of increase hinges on the housing price trends in Seoul and the metropolitan area." They added, "Given that the rise in housing prices in Seoul continues, it is necessary to exercise caution to prevent monetary policy from spreading the increase in housing prices."
Another commissioner remarked, "Given the ongoing uncertainty surrounding external conditions and the persistent risks to financial stability such as household debt, any decision regarding further interest rate cuts should be made cautiously, closely inspecting the developments in tariff negotiations between the United States and major countries, the direction of major countries' central bank currency policies, and changes in household debt and exchange rate conditions."