Latest news with #MonetaryPolicyBoard
Korea Herald
6 days ago
- Business
- Korea Herald
BOK halts easing cycle to counter soaring home prices
Central bank keeps rates steady, citing debt risks over growth concerns The Bank of Korea held its base rate steady Thursday, aiming to rein in mounting household debt amid a resurgent property market. The central bank maintained the rate at 2.5 percent. The rate freeze was supported by all six members of the Monetary Policy Board excluding BOK Gov. Rhee Chang-yong, whose individual vote is not disclosed. Amid the financial authorities' move to impose strict lending regulations, such as capping mortgage loans at 600 million won ($437,000) in the Greater Seoul area, the BOK has also signaled its intent to curb the debt surge by keeping the base rate unchanged. "Housing prices, especially in the Seoul metropolitan area, are rising faster than they did in August last year," BOK Gov. Rhee Chang-yong said at a press conference held shortly after the rate-setting meeting. 'The policy priority lies in stabilizing the market expectation and managing household loans to prevent a rise in housing prices,' Rhee said. A sharp increase in household loans could pose a threat to the country's financial stability by heightening the risk of nonperforming loans, while also dampening overall consumption. 'The mounting household debts entail many side effects. The amount of the loan has already neared a tipping point that poses constraints on consumption and overall growth,' Rhee said. Driven by increased housing transactions and soaring home prices, outstanding household loans at banks stood at 1,161.5 trillion won at the end of June — the largest monthly gain in 10 months — according to central bank data released on the previous day. "The BOK has long held the view that the scale of a rate cut should be carefully managed so as not to fuel further increases in property prices," Rhee said. The rate hold puts the brake on BOK's recent rate-cut cycle. Since October, the bank has been alternating between rate cuts and holds, bringing down the policy rate by a cumulative 1 percentage point to support the sluggish economy. The widening Korea-US interest rate gap, now at a record 2 percentage points, is another key factor in the central bank's cautious stance. With the US Federal Reserve expected to hold its rate this month, an additional rate cut by the BOK would have widened the differential to 2.25 percentage points, raising concerns over foreign exchange market volatility. "It is not that the Korea-US rate gap should not exceed a certain level mechanically," Rhee said, underlining that the central bank does not adhere rigidly to a specific threshold in setting its policy. "While the dollar is expected to remain on a weakening trend, we will need to closely monitor the situation, though Korea's dependence on US monetary policy has lessened compared to the past." Though the BOK kept the rate steady Thursday, market analysts viewed the central bank remains on track for a rate cut cycle. 'The Korea-US rate gap is concerning, but solely waiting for a rate reduction from the US is not viable. The external policy burden is expected to ease significantly once the tariff negotiations scheduled for Aug. 1 are confirmed,' said Yoon Yeo-sam, an analyst at Meritz Securities. 'While the rate cut could be delayed until October as the BOK assesses the impact of the real estate policies, the possibility of a rate cut in August remains high, provided the low-growth trend does not change significantly,' Ahn Ye-ha, an analyst at Kiwoom Securities, viewed.
ABC News
7 days ago
- Business
- ABC News
Former top RBA official says it risks falling into persistent policy error
Millions of mortgage borrowers are not the only ones disappointed by the Reserve Bank's decision to not cut interest rates this month. Former RBA assistant governor Luci Ellis, who is now Westpac's chief economist, described the decision — by a six-to-three majority of the monetary policy board — to wait before cutting rates again as "uncharitable". Westpac and its customers rely on her interpretation of what the Reserve Bank Monetary Policy Board will do with interest rates from meeting to meeting. And, although she suspected the Reserve Bank might wait until August to cut interest rates again, she still switched her forecast to a July interest rate cut after weak monthly inflation figures were released by the ABS a fortnight ago. "One of the reasons I [originally forecast the next interest rate cut in August] was a sense that … they would wait, thinking that they wouldn't use the full information set available to them now," she explained. In other words, Dr Ellis assumed the Monetary Policy Board would wait for the more comprehensive June quarter inflation data before cutting interest rates. "It felt a little bit uncharitable [to forecast that]," she said. However, the majority of six opted for a cautious approach, waiting for that more detailed data to confirm that inflation was falling in line with the Reserve Bank's forecasts, which have it hitting 2.6 per cent — close to the mid-point of the 2–3 per cent target. In a LinkedIn post late on Tuesday, Dr Ellis expressed some frustration over the RBA's decision to leave the cash rate unchanged. "Why on earth wait?" she wrote. In the post-meeting statement, the RBA explained that "the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis". However, Dr Ellis found that explanation unconvincing. "I think it was quite an unconfident call by the RBA not to move this time," Dr Ellis said. "Unless they really think they might not move in August, it wasn't clear why [the RBA] didn't already have enough information to make that decision." The Reserve Bank Monetary Policy Board said it would "be attentive to the data and the evolving assessment of risks to guide its decisions". "In doing so," the board said, "it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market." The next ABS Labour Force data will be published on July 17, while the June quarter CPI data will be released on July 30. But Dr Ellis argued the RBA was focused almost exclusively on the quarterly inflation data. "This has been the rounds that we've been on for the last 18 months," she lamented. "It shouldn't, in some sense, come down to one number, but each quarter it has. "I mean the number of times that our [interest] rate calls have hinged on [the question], 'Was there a surprise [in that CPI data]?' — it's kind of a clunky way to have to make your [interest] rate forecasts. "But on the other hand, they're at the point where they're trying to work out if inflation really is comfortably inside the 2 to 3 per cent target range, whether it's going stay there, whether it's going to get to that 2.5 per cent [inflation] rate." Dr Ellis believed that was not the best way to make monetary policy decisions. "It's going to keep coming down to the quarterly CPI, and it will mean that people focus so much on that number instead of on the broader assessment of the economy," she cautioned. "And that's a shame." Investment firm, Deutsche Bank, similarly took aim at what it perceived as contradictory language in the RBA's communications. "The [RBA's] post-meeting statement notes that: 'While recent monthly CPI Indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were, at the margin, slightly stronger than expected,'" chief economist Phil O'Donaghoe noted. "We struggle to interpret what the RBA means with this phrase. There were a few economists, however, who anticipated the central bank's decision to leave interest rates unchanged. Betashares chief economist David Bassanese was one of them. "As I have consistently argued in recent weeks, the case to cut rates today was never compelling," he noted. "While consumer spending remains stubbornly weak, the labour market remains strong. "And while the recent monthly CPI report showed a large decline in annual trimmed mean inflation to 2.4 per cent, monthly reports are notoriously volatile. "Only the month prior, trimmed mean annual inflation was at 2.8 per cent." Underlying inflation at 2.8 per cent indicates price growth more broadly in the economy could easily move outside the RBA's 2 to 3 per cent comfort zone. "To my mind," Mr Bassanese added, "the RBA [will] wait for the more reliable quarterly CPI report later this month to confirm a decline in underlying inflation before cutting rates again in August." Dr Ellis, however, argued this approach could push the RBA into chronic policy error. "I think where there is a risk partly around the idea that maybe the RBA is seeking so much certainty in the data that they end up continuously behind the curve more generally," she warned. "So if it forms into a pattern of behaviour where the RBA doesn't have the courage of its analysis, isn't willing to make a forecast that is anything other than locked in based on backward-looking data, that would be a problem. "But it's not what we're seeing yet."
Yahoo
03-06-2025
- Business
- Yahoo
Surprising Aussie benefit of Trump trade
Aussies households are tipped to slow their spending on the back of US President Donald Trump's tariff policy even though they will likely benefit from cheaper goods and it helped deliver a rate cut in May. In a speech made at the Economic Society of Australia Business Lunch, RBA assistant governor Sarah Hunter said Australia was one of the countries that could benefit from cheaper goods in the short term as weakening growth outweighs rising costs for businesses. 'Overall weaker global growth would put near-term downward pressure on the prices of globally traded goods,' she said. 'For countries that are not imposing higher tariffs, such as Australia, this could flow into import prices, making products cheaper and lowering inflation.' But the Trump tariffs are unlikely to lift anaemic household spending, with Australians tipped to moderate their purchases, while business investment is tipped to stall. 'Greater uncertainty about the future can lead households and businesses to save instead of spending and investing, and this is likely to be the case for Australian households and businesses too,' Ms Hunter said. 'Though the magnitude of these effects is itself very uncertain, this does suggest that global uncertainty may weigh substantially on domestic activity if uncertainty remains elevated.' Ms Hunter said there were various forecasts the RBA had made surrounding the global environment, with the base case showing slower economic growth in Australia, a slightly weaker labour market and the price of tradeable goods to dampen. 'Together, these two outcomes mean that inflation is forecast to be a little lower than the February statement of monetary policy, settling around the midpoint of 2 to 3 per cent target range,' she said. Ms Hunter said the overall economic uncertainty on the back of the Trump policies also added to the 25 basis point rate cut in May. 'These were provided to the Monetary Policy Board to help inform their decision-making; taking all the information into account and considering the risks to the outlook, they decided to cut the cash rate by 25 basis points,' she said. Going forward, Ms Hunter said the central bank would continue to watch the data. Mr Trump announced on April 2 a global tariff policy on just about every trading partner on the basis of evening up the US trade deficit. At a minimum, every country, including Australia, faced a 10 per cent tariff, while 'cheating' countries faced higher tariffs Mr Trump eventually paused the majority of his tariff policy for 90 days due to the damage that was being done to his own economy and money markets. He also faced a challenge in the federal courts over his use of power. Sector-specific tariffs such as the 50 per cent on steel and aluminium imports to the US and a 30 per cent 'reciprocal tariff' on China are still in effect.
West Australian
03-06-2025
- Business
- West Australian
‘Downward pressure on prices': Silver lining in Trump trade
Aussies households are tipped to slow their spending on the back of US President Donald Trump's tariff policy even though they will likely benefit from cheaper goods and it helped deliver a rate cut in May. In a speech made at the Economic Society of Australia Business Lunch, RBA assistant governor Sarah Hunter said Australia was one of the countries that could benefit from cheaper goods in the short term as weakening growth outweighs rising costs for businesses. 'Overall weaker global growth would put near-term downward pressure on the prices of globally traded goods,' she said. 'For countries that are not imposing higher tariffs, such as Australia, this could flow into import prices, making products cheaper and lowering inflation.' But the Trump tariffs are unlikely to lift anaemic household spending, with Australians tipped to moderate their purchases, while business investment is tipped to stall. 'Greater uncertainty about the future can lead households and businesses to save instead of spending and investing, and this is likely to be the case for Australian households and businesses too,' Ms Hunter said. 'Though the magnitude of these effects is itself very uncertain, this does suggest that global uncertainty may weigh substantially on domestic activity if uncertainty remains elevated.' Ms Hunter said there were various forecasts the RBA had made surrounding the global environment, with the base case showing slower economic growth in Australia, a slightly weaker labour market and the price of tradeable goods to dampen. 'Together, these two outcomes mean that inflation is forecast to be a little lower than the February statement of monetary policy, settling around the midpoint of 2 to 3 per cent target range,' she said. Ms Hunter said the overall economic uncertainty on the back of the Trump policies also added to the 25 basis point rate cut in May. 'These were provided to the Monetary Policy Board to help inform their decision-making; taking all the information into account and considering the risks to the outlook, they decided to cut the cash rate by 25 basis points,' she said. Going forward, Ms Hunter said the central bank would continue to watch the data. Mr Trump announced on April 2 a global tariff policy on just about every trading partner on the basis of evening up the US trade deficit. At a minimum, every country, including Australia, faced a 10 per cent tariff, while 'cheating' countries faced higher tariffs Mr Trump eventually paused the majority of his tariff policy for 90 days due to the damage that was being done to his own economy and money markets. He also faced a challenge in the federal courts over his use of power. Sector-specific tariffs such as the 50 per cent on steel and aluminium imports to the US and a 30 per cent 'reciprocal tariff' on China are still in effect.
Korea Herald
29-05-2025
- Business
- Korea Herald
BOK slashes growth forecast by half to 0.8%
Korea faces slowest growth since 2009 as central bank cuts rates to spur recovery South Korea's central bank nearly halved its economic growth projection for this year to 0.8 percent on Thursday, reflecting deepening challenges both at home and abroad. In a bid to support the struggling economy, the Bank of Korea also delivered a quarter-point base rate cut. The revised estimate for gross domestic product growth, a key measure of economic performance, is down 0.7 percentage point from the BOK's previous forecast of 1.5 percent made in February. The downgrade factors in the 0.2 percent economic contraction in the first quarter and heightened trade risks, including US tariff actions. If realized, this would mark the first time since 2009 that the nation's growth rate falls below 2 percent, excluding the pandemic-triggered contraction in 2020. The last instance was when the GDP rose by 0.8 percent in 2009, hit by the global financial crisis. 'The economy is facing challenges, but it's difficult to compare the current situation to that of 2008,' BOK Governor Rhee Chang-yong said at a press conference following the Monetary Policy Board meeting. 'At that time, Korea's potential growth rate was around 3 percent. Now, it has fallen to 2 percent. A 0.8 percent growth is certainly painful, but it's not a crisis on the scale of 2008.' The BOK's revised projection aligns with recent adjustments from other institutions. The Korea Development Institute, for instance, also halved its growth outlook from 1.6 percent to 0.8 percent. Despite the downgrade for 2025, the BOK trimmed next year's growth forecast by just 0.2 percentage point to 1.6 percent, suggesting an anticipated recovery. 'Over the past two years, construction investment has been the biggest drag on growth,' said Rhee. 'The sector had overheated during the real estate boom and is now undergoing a sharp correction, which we expect to stabilize within this year.' The BOK maintained its inflation outlook for 2025 at 1.9 percent, signaling that consumer prices are expected to follow a stable trajectory despite slower growth. To stimulate economic activity, the central bank lowered the base rate by 0.25 percentage point to 2.5 percent. This marks the fourth rate cut since the BOK began easing in October 2024. All six voting members of the Monetary Policy Board supported the rate cut, excluding Governor Rhee, whose vote is not disclosed. Four of the six members were open to further easing within the next three months, while the remaining two expressed opposition. With the latest decision, the interest rate gap between South Korea and the US has widened to 2 percentage points. However, the recent appreciation of the Korean won has helped mitigate concerns over capital outflows and foreign exchange volatility. 'The won's earlier depreciation was excessive compared to the underlying fundamentals of the Korean economy. Its current appreciation is a normalization process,' said Rhee. Attention now turns to the US Federal Reserve's upcoming Federal Open Market Committee meeting scheduled for June 17-18. The next BOK rate-setting meeting will be held on July 10.
