I don't like to look back on decisions I made in the past and think about how different things might be now if I had taken another path. For instance, I see little point in wondering how my life would have changed if I had attended a different university or not become a journalist.

The same applies to economic policies. However, the timing of economic policy, as opposed to its content, is a different matter. In economic policies, timing is as important as, if not more important than, the content.

We often see cases where well-designed policy measures fail to produce the desired effects, or even worsen the situation, because they are implemented too late or too early. Conversely, even poorly prepared measures can achieve better-than-expected results when implemented at the right time.

Unfortunately, the Bank of Korea’s recent policy actions appear to fall into the former category. In October, the central bank lowered its policy interest rate for the first time in nearly four and a half years. This decision was based on inflation stabilizing, household debt growth slowing due to tightened government macroprudential policies, and risks easing in the foreign exchange market.

The central bank also noted that, while the local economy was expected to continue its trend of moderate growth, uncertainties surrounding the growth outlook had heightened due to the delayed recovery in domestic demand. However, the effect of the rate cut on financial and economic conditions was very limited.

Of course, market players agreed that the rate cut was better than nothing in the sense that policymakers were finally paying attention to weakening economic conditions. But the decision came too late to achieve its typical effect of encouraging people to invest more in riskier assets, such as equities, and spurring businesses to continue spending — even by increasing borrowing.

In fact, most conventional indicators had pointed to the need for a rate cut much earlier in the year. Inflation was declining and poised to fall below the central bank’s 2 percent target, economic growth showed signs of missing expectations, and employment figures were disappointing.

While acknowledging that the weakening macroeconomic conditions warranted a policy shift, the central bank refused to lower the interest rate earlier, citing concerns about rising real estate prices in Seoul and the surrounding region, high household debt levels and a volatile dollar-won exchange rate.

However, these justifications were far from economically sound. First, real estate prices were not rising rapidly on a national level. Apartment prices were indeed climbing in the Seoul metropolitan area, but housing prices nationwide were largely flat -- or even declining when adjusted for inflation.

Its concern over high household debt levels also appeared unfounded. While South Korea’s household debt is high by international standards and poses long-term risks to the financial system, it is not solely the central bank’s responsibility to address this issue.

The underlying causes of high household debt include structural factors such as the country’s unique house rental system, underdeveloped banking practices and relatively limited household income sources beyond wages due to the underdeveloped local capital market.

The central bank’s concerns about the volatile dollar-won exchange rate were also questionable. While some argue that lower interest rates could trigger capital outflows and weaken the local currency’s value, research shows that interest rates are just one of many factors influencing exchange rates.

Eventually, the Bank of Korea decided to cut the policy rate at its October meeting. Yet this significant decision failed to alleviate public concerns or boost the economy as expected. As conditions deteriorated further, the central bank implemented another rate cut in November.

It is highly unusual for the central bank to lower interest rates at two consecutive policy meetings in the absence of a crisis, such as the US subprime mortgage crisis or the COVID-19 pandemic. This move was clearly intended to signal to investors and other economic actors that policymakers were committed to supporting the economy.

However, the financial markets reacted in an entirely unexpected way. Instead of increasing their holdings of stocks and other won-denominated assets, investors sold them off. Rather than conveying confidence that policymakers could turn the situation around, the successive rate cuts sent the opposite message -- that the economy might be in far worse condition than previously thought.

Regrettably, the Bank of Korea’s monetary policy over the past two months will likely be remembered as a textbook example of well-intentioned policy implemented at the wrong time, forcing the entire economy to bear unnecessary costs.

To make matters worse, the economy is now falling deeper into chaos due to political instability sparked by the president’s sudden failed attempt to impose martial law. The Bank of Korea may face no choice but to implement a third consecutive rate cut at its next policy meeting if the situation continues to hurt economic sentiment.

It would definitely be a scenario the Bank of Korea could not have imagined when it continued to ignore signals from traditional macroeconomic indicators suggesting it was time to take action. The inconvenient truth is that someone will have to bear the cost.

Yoo Choon-sik

Yoo Choon-sik worked for nearly 30 years at Reuters, including as the chief Korea economics correspondent, and briefly worked as a business strategy consultant. The views expressed here are the writer’s own. -- Ed.