Bank of Korea Governor Lee Chang-yong: "Dark Tunnel Due to US Tariffs... Unprecedented Uncertainty"

The Bank of Korea's Monetary Policy Committee held the base rate at 2.75% on the 17th. Governor Lee Chang-yong stated that "uncertainty has become unprecedentedly large."

Governor Lee, at a press conference following the Monetary Policy Committee meeting, commented on the impact of the US tariff shock on monetary policy, saying, "It feels like we've suddenly entered a dark tunnel," and assessed that "the uncertainty of future growth paths is very large, to the extent that it is difficult to even set a basic scenario for forecasts, as the intensity of US tariff policies and the responses of major countries are changing rapidly."

Governor Lee explained that among the six Monetary Policy Committee members, five believed that "considering inflation and growth, a base rate cut is necessary, but given policy uncertainty, financial stability, and capital flows, it is better to hold the rate steady and observe for the time being."

The remaining member, Shin Sung-hwan, expressed a minority opinion that the base rate should be cut by 0.25 percentage points (p).

Governor Lee reported that "Member Shin stated that while a significant rate cut is necessary considering only inflation and growth, concerns remain about the exchange rate and household debt, so a 0.25%p cut is needed this time."

Regarding the economic growth forecast for this year, scheduled to be announced next month, Governor Lee mentioned that "there is a significant possibility it will be lowered." The existing forecast is 1.5%.

Governor Lee said, "We did not expect large-scale wildfires in the first quarter, nor did we expect political uncertainty to last long," adding, "Even without considering the US tariff shock, it seems worse than initially expected."

He added, "With political polarization intensifying in the first quarter and the delay in resolving uncertainty, domestic demand was very sluggish," and "I hope much of this will be resolved in the second half."

Governor Lee emphasized that the next base rate decision is just before the early presidential election, stating, "I will make a neutral decision to avoid appearing political."

Regarding the current won/dollar exchange rate, Governor Lee said, "According to economic models, it is more depreciated than fundamentals," and "there is room for it to come down further if the US administration's tariff policies and political uncertainties stabilize."

He stated, "For volatility to decrease, it must be determined how the US administration's tariff policies will proceed and how other countries will accept or retaliate."

He continued, "Monetary policy will be influenced by US inflation or growth, and the dollar index will have an impact," adding, "It will also be affected by how political uncertainty in our country is resolved."

Hyun Shin-yong, Hankyung.com reporter yonghyun@hankyung.com