South Korean Consumer Spending Speculated to Benefit from Interest Rate Cuts

A member of the Bank of Korea's board emphasized on Tuesday that South Korean consumer spending is likely to benefit from interest rate cuts when implemented by the central bank. The official, Suh Young-kyung, noted that domestic demand has become increasingly sensitive to interest rates compared to previous periods. Suh's comments come amidst a sharp drop in consumer sentiment in March, as revealed by a survey conducted by the Bank of Korea, indicating growing concerns about rising produce prices and inflation ahead of next month's elections.

Suh highlighted the potential positive effects of normalizing interest rates after stabilizing inflation, suggesting that it could alleviate the burden of debt repayment for consumers. However, she refrained from specifying the timing of interest rate cuts, acknowledging concerns about potential upward pressures on household loans and house prices, albeit not of significant magnitude.

Suh, whose term ends a week after the April 12 policy meeting, observed that domestic spending was rebounding slower than anticipated, attributing this partly to the heightened sensitivity of consumer behavior to interest rates, which have remained elevated for an extended period. She emphasized that the monetary policy board would carefully consider various factors, including inflation, domestic demand, household debt, and house prices, in determining the appropriate course of action regarding interest rates.

At their previous meeting in February, most members of the Bank of Korea's board indicated that it was premature to pivot in monetary policy, aiming to temper investors' expectations for aggressive rate cuts after maintaining interest rates at a 15-year high.