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Investing.com -- South Korea’s central bank governor warned Thursday that "excessive" interest rate cuts could trigger property price increases and add to currency market volatility, despite ongoing economic weakness.
Governor Rhee Chang-yong expressed caution about aggressive monetary easing in a speech prepared for the bank’s 75th anniversary. "If we rely too much on economic stimulus policies out of urgency, there may be greater side effects later on," Rhee said. "If we cut the base interest rate excessively, there is a high risk that it will lead to a rise in real estate prices."
His comments follow the central bank’s decision on May 29 to lower its policy rate by 25 basis points to 2.5%, marking the fourth reduction in the current easing cycle. The bank indicated more rate cuts would follow, citing challenges from U.S. trade tariffs and weak domestic consumption.
The rate cut aligned with newly elected President Lee Jae-myung’s plans for major stimulus measures, including a second extra budget this year to boost economic growth.
Rhee also voiced concerns about currency market instability. "The gap between domestic and foreign interest rates may widen further as the U.S. Federal Reserve adjusts the pace of its interest rate cuts, and uncertainty surrounding the results of trade negotiations with major countries may increase, leading to increased volatility in the foreign exchange market," he said.
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