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BOK to maintain easing stance as chief calls for economic stimulus

Published: 12 Jun. 2025, 18:01 Updated: 12 Jun. 2025, 20:09

Bank of Korea Gov. Rhee Chang-yong speaks at the central bank's 75th anniversary ceremony held in central Seoul on June 12. [BANK OF KOREA]

Bank of Korea (BOK) Gov. Rhee Chang-yong called for a much-needed economic stimulus from the new Lee Jae-myung administration amid the worsening economic low-growth crisis of the Korean market. To that end, he pledged to maintain the current monetary easing stance.

However, Rhee warned that excessively lowering interest rates could backfire — triggering a renewed surge in housing prices in the greater Seoul area — and emphasized that structural reforms must be carried out in parallel to boost Korea’s growth potential. Acknowledging that such reforms inevitably involve social conflict, he urged the new administration to demonstrate leadership in resolving tensions.

“The growth rate for the first half of this year is projected to be only 0.1 percent year-on-year, and construction investment is expected to contract for a fifth consecutive quarter through the second quarter of this year,” Rhee said at the BOK’s 75th anniversary ceremony in central Seoul on Thursday.

“The Bank of Korea recognizes the seriousness of this situation and sees an urgent need for economic stimulus.”

Rhee attributed the recent slowdown to internal and external shocks, including heightened political instability following the Dec. 3 martial law declaration last year by former President Yoon Suk Yeol and strengthened U.S. protectionist trade policies over the past six months.

To support the economy, Rhee said the BOK would “maintain an easing monetary policy stance for the time being,” signaling further potential rate cuts on the horizon. However, he said the scope would be limited, citing concerns about real estate prices and the won-dollar exchange rate. Korea’s benchmark interest rate currently stands at 2.5 percent.

Bank of Korea Governor Rhee Chang-yong speaks at central bank's 75th anniversary ceremony held in central Seoul on June 12. [BANK OF KOREA]

“Since March, apartment prices in Seoul have risen at an annual rate of around 7 percent, and household lending by financial institutions has also increased,” he said. “We must break away from the past practice of stimulating the economy by fueling speculative real estate investment.”

Rhee emphasized that Korea’s weakened economic fundamentals, driven by the declining birthrate and population aging, have increased the risk of contraction from both domestic and global shocks. Structural reform is essential to restoring resilience, he said.

The BOK has previously proposed a number of reform measures, including developing regional hub cities to reduce population concentration in the capital area, improving care services by utilizing foreign labor and encouraging the post-retirement re-employment of older workers without legally extending the retirement age.

“Structural reform inevitably creates conflict between interest groups and, in the process, winners and losers,” Rhee said. “I hope the new administration clearly prioritizes its reform agenda and exercises leadership in managing social conflict so that today’s crisis can become an opportunity.”

Even good policy, he noted, will fall short without careful coordination and broad public consensus.

The Bank of Korea headquarters in central Seoul [NEWS1]

Rhee also stressed the need to prepare for future challenges, beyond resolving current structural issues. The BOK would continue exploring the development of a central bank digital currency and the potential use of deposit tokens issued by commercial banks, particularly in response to the emerging “finternet” — the increasing integration of finance and the internet.

However, when asked about recent calls from within the ruling party for a won-based stablecoin, Rhee chose his words carefully.

“Won-based stablecoins could contribute to innovation in the fintech industry, but because they may function as substitutes for the legal bill, we must establish institutional safeguards to ensure they are both stable and useful, and that they do not circumvent foreign exchange regulations,” he said.

While the BOK has previously emphasized risks such as financial instability and weakened monetary policy efficacy, the governor's more measured tone on Thursday led to speculation that the central bank may be softening its stance.

A BOK official responded, “Our position has not changed. We are simply being cautious to avoid unnecessary misunderstandings that the BOK is unconditionally opposed to a won-based stablecoin.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM KYUNG-HEE [[email protected]]