BOK Governor Rhee on Policy Path, Market Volatility

Monetary Policy & Economic Outlook - Bank of Korea believes monetary policy alone cannot control the housing crisis, but is mindful that ample liquidity wouldn't slow the fire [1] - Rate cuts are still on the table due to GDP performing higher than expected and resilient trade [3] - The forecast for this year's growth is 4.9%, well below potential GDP, and 1.6% for next year [4] - The official position is to maintain the easing monetary cycle given the negative output gap, but the magnitude and timing depend on new data [5] - Korea's potential GDP growth rate is probably between 1.8% and 2% due to rapid aging [6] Bond Market & Yields - Bond market yields are reacting not only to domestic factors but also global factors such as the possibility of the US Fed decision and the dollar's movements [7][8] - There is concern that surging yields will affect the monetary transmission mechanism [9] - The Bank of Korea has cut interest rates by 300 basis points since last October and anticipates an easing cycle [9] Trade & Investment - The trade deal between the US and Korea is considered a good development that helps reduce uncertainties regarding tariffs [11] - Implementing the trade deal requires parliamentary approval and enactment of new laws [12] - A commercially viable and win-win program for both the US and Korea is desired, potentially through joint ventures combining US science strengths with Korean application and manufacturing technology [13] - One key focus has been the $350 billion investment fund in the U S [13] Currency & Financial Stability - The Korean market is excessively sensitive to uncertainties affecting the exchange rate, including US stock prices, US economic shutdowns, US Fed policy, and US-China trade relationships [14][15][16] - Depreciation in the Korean Won is hard to judge due to numerous fundamentals [16] - The current level of the Korean Won exchange is mostly dominated by domestic investment abroad, and foreign currency debt level is stable, suggesting no immediate financial stability concerns [18] - The Bank of Korea is willing to intervene if there is excessive movement in the exchange rate [19] Stock Market - Korean stock prices, particularly in the semiconductor industry, are influenced by US technology stock prices, leading to potential volatility [21] - There are concerns about the potential unraveling of high-tech stock prices, especially for domestic retail investors [22] - The price-to-book ratio (PBR) is 1.1%, which is considered below other countries' levels, suggesting the stock market is not significantly overvalued [20]