South Korea’s central bank governor emphasized on Thursday that monetary policy easing would require a flexible approach this year due to significant political and economic uncertainties.

“Conditions surrounding our economy this year will be more challenging than ever,” said Bank of Korea Governor Rhee Chang-yong in his New Year’s address.

Rhee stressed the need for monetary policy to be managed with both flexibility and agility, given the unprecedented level of uncertainty in the political and economic landscape.

He noted that the pace of future interest rate cuts would be adjusted flexibly, considering the widening trade-offs between growth, inflation, foreign exchange stability, and household debt levels.

In its final policy meeting of 2024, the Bank of Korea implemented consecutive rate cuts for the first time since 2009, reflecting concerns about trade risks stemming from the incoming U.S. administration under President-elect Donald Trump.

Rhee highlighted increased downside risks to the central bank’s 1.9% economic growth forecast for this year, citing uncertainty over U.S. trade policies and domestic political developments.

Regarding the South Korean won, which weakened by over 12% in 2024, marking its worst annual performance since 2008, Rhee cautioned that exchange rate volatility could persist for an extended period.

Montetary easing is not a silver bullet

Rhee has often been seen taking a more cautious approach when it comes to monetary policy, believing that although he always has to put the overall trajectory of the economy first, but he also has to consider the extent of the policy with a variety of other social factors.

Rhee has on multiple occasions criticized the Korea Development Institute(KDI)-the state-run think tank who led the charge for monetary easing policy-for lacking the consideration for the long-term financial stability of the country.

While the KDI often calls for a swift rate cut to help boost domestic consumption, including corporate investment and retail spending, but Rhee has often criticized this approach as thoughless and a danger to the financial stability of the country.

Instead, he often called for a different, broader approach to encompass the rapid debt buildup of households and small businesses, long left unaddressed and unresolved.

Rhee expressed that if the rate cut proceeded without structural reform measures in place, years of distressed debt growth would have only surged further. Rhee added that he is steering the monetary policy in a suitable pace, with fiscal and other government policies factored in.