Bank of Korea prioritizes domestic demand over exchange rate

[Anchor]

The political turmoil is worsening the economy.

The exchange rate is problematic, and so is domestic demand.

The Bank of Korea seems to have decided that stimulating domestic demand is more urgent than managing the exchange rate.

Reporter Hwang Kyung-joo investigates the reasons behind this decision.

[Report]

Rent, rent, and more rent.

This is the situation in the Gangnam area of Seoul.

The situation is even worse in other regions.

In Sejong, the vacancy rate for medium and large commercial buildings exceeds 20%.

It has gotten so bad that a 'vacancy fair' was even held.

[Shin Min-jung/Commercial Property Manager/Nov. 20: "Since we are near 'academic districts' like Sejong Arts High School, there are hopes for academies or restaurants..."]

Despite repeated signals, the Bank of Korea has maintained that this is not a recession until recently.

[Park Chang-hyun/Head of Price Trends Team, Bank of Korea/Nov. 28: "We do not see any signs of deflation (recession) at least within the next two years."]

With the overlapping fears of martial law, impeachment, and a second term for Trump, consumer sentiment sharply declined in December, prompting a change in stance.

This is why the Bank of Korea explicitly indicated 'interest rate cuts next year' in its report.

[Jeong Gyu-cheol/Head of Economic Forecasting Office, Korea Development Institute: "Since the economic situation can change, they have been quite cautious in their expressions, but now they seem to believe that the possibility of an interest rate cut is quite high."]

Household debt is a concern, and the exchange rate is also worrisome, but for now, they have decided to prioritize domestic demand.

The calculation is that in the long run, domestic demand must improve to stabilize the exchange rate.

[Seo Jeong-hoon/Research Fellow, Hana Bank: "If the economy begins to recover due to continued interest rate cuts, there is a possibility that the exchange rate could actually fall."]

However, the won-dollar exchange rate has risen again by more than 8 won, reaching 1,464 won.

In this situation, the question arises whether lowering interest rates, which would further decrease the value of the won, is truly a good idea, complicating the Bank of Korea's concerns even more.

This is KBS News, Hwang Kyung-joo.