[On-Site Video+] Base Rate Cut to 3%... "Uncertainty grows in line with the U.S. administration's economic policy."

[Anchor]
The Bank of Korea's Monetary Policy Committee held its last meeting of the year today (28th) and lowered the benchmark interest rate by 0.25%p to 3%.

It's a surprise cut that broke the expectations of the market and experts.

It came down again following last month, and this is the first consecutive cut in 15 years since 2009, when the global economic crisis erupted.

That's how bad the economy is.

In fact, we have lowered our forecast for economic growth.

The growth rate this year was 2.4% and next year was 1.9%, down 0.2%p from the previous forecast.

Lee Chang-yong, governor of the Bank of Korea, explains the background of this decision.

Let's go to the scene.

[Lee Changyong / Governor of the Bank of Korea]
Hello, everyone. Today, the Monetary Policy Committee decided to cut the Bank of Korea's key interest rate to 3 percent from the current 3.25%. First, I will explain the domestic and foreign economic conditions and then tell you the background of the base rate decision. First of all, looking at external conditions, the global economy continued to grow slowly, but economic and inflation uncertainties increased due to the direction of the new U.S. government's economic policy. Looking at the economic situation, the U.S. is expected to continue its good growth with tax cuts and deregulation expectations since the launch of the new government.

The euro area's economy will gradually ease, but sluggish manufacturing and possible trade friction are likely to constrain growth. China is expected to show a growth trend that falls short of its original forecasts due to sluggish real estate, consumption and slowing exports, although government stimulus will ease some downward pressure on the economy. Inflation trends show that de-inflation progress after the presidential election may be slower than expected in the United States, while in other major economies, downward pressure from weaker growth is expected to offset the impact of the strong dollar, leading to a largely slowing inflation trend.

In the international financial market, major countries' policy stance continued to ease, but U.S. long-term government bond rates rose sharply and the dollar strengthened significantly. Next, looking at internal conditions, the domestic economy's growth flow has weakened than expected. This is because exports slowed due to structural factors, such as weakening recovery in the IT sector and intensifying competition in key industries, amid a moderate recovery in domestic demand. Domestic prices continued to stabilize. Consumer inflation temporarily fell to 1.3% in October as oil prices fell, while core inflation also slowed to 1.8%.

Short-term expected inflation remained at 2.8%, the same level as the previous month. In the domestic foreign exchange market, the won-dollar exchange rate rose significantly due to the strong U.S. dollar, continued overseas investment by Koreans, and net foreign stock selling, while long-term treasury bond rates fell differently from U.S. Treasury yields, which rose sharply. Shares fell as the earnings outlook for major companies slowed.

The housing market and household debt continued to slow down as the effects of the government's macroprudential policies continued. Home sales prices continued to decline in the Seoul metropolitan area and continued to decline in the non-capital area. Household loans in the financial sector have increased slightly as other loans have increased due to seasonal factors, but they are believed to continue to slow down, focusing on housing-related loans. After November, household loans are expected to remain slow for the time being due to lower housing volumes and continued macroprudential policy impacts.

In addition, we have re-examined future growth and price flows by reflecting changes in internal and external conditions since the economic outlook in August. First, this year and next year's growth rates are expected to be 2.2% and 1.9%, respectively, below the 2.4% and 2.1% forecasts in August. This reflects the fact that domestic demand is expected to continue a modest recovery centered on consumption, but export growth is expected to be lower than expected due to intensifying competition in major industries and strengthening protectionism.

However, this growth path is usually considered to have high uncertainties regarding environmental changes, IT export flows, and the pace of domestic recovery. Consumer inflation is also expected to be 2.3% and 1.9% this year and next, 0.2 percentage points lower than last August's forecast. Although rising exchange rates will put upward pressure on inflation, they reflect that upward pressure on the supply side, such as international oil prices, will ease and demand pressures are not expected to be significant. Core inflation is expected to be 2.2% this year, matching the previous forecast, but 1.9% next year, slightly below the previous forecast. In the future, the price channel is expected to be affected by exchange rates, international oil prices, and utility charges adjustments.