(Bloomberg) -- The Bank of Korea’s policy board is about to lose all of its early inflation fighters, adding uncertainties to forthcoming efforts to tamp down price pressure if it flares up again, a former policy director said.

The South Korean central bank is undergoing one of the biggest reorganizations in years. Among those departing are Cho Yun-je and Suh Young Kyung, who will finish their four-year terms in April. The two are the only members who were on the board when it raised its key interest rate in August 2021, becoming one of the world’s first central banks to start tapering pandemic-era stimulus.

“They were there to witness the adverse effects of aggressively eased policy,” said Hong Kyungsik, who retired at the end of February as director general of the monetary policy department. “So they supported the earliest rate hike in the developed world.”

Hong had a front-row seat to the discussions leading to a decision to exit the record-low rate of 0.5%, as he had taken over the policy department to support the seven-member board in July 2021, a month before the move.

The experience of observing financial imbalances in an ultra low-rate environment and then tackling them head-on early is particularly valuable now, as the bank will face increasing pressure to pivot, Hong said. After Cho and Suh leave, Governor Rhee Chang-yong and board member Shin Sung Hwan will for a period be the only members with experience that dates back prior to 2023.

South Korea also holds parliamentary elections in April that are crucial to President Yoon Suk Yeol’s policy agenda for the rest of his term ending in 2027. Nominations for new board members are typically made following consultation with the president’s office, which has the final say on the candidates.

Credit risks associated with the real estate market are likely to number among factors pushing the board toward easing. Hong said these concerns prompted the bank to slow the pace of tightening and eventually hold the rate at 3.5% for most of 2023.

Challenges related to the construction industry are likely to continue, with developers such as Taeyoung Engineering & Construction Co. having debt trouble as housing-market woes linger on, testing the board over the direction of policy, Hong said.

Last month an unidentified board member said the central bank should be open to a rate cut in the next three months, a suggestion Rhee pushed back against with a comment that such a move would be difficult in the first half of 2024.

Hong said it is still too early for the BOK to pivot given the fight against inflation needs to continue, a comment in line with the view expressed by Rhee, who has said each central bank has more scope now to chart its own path this year even as Federal Reserve Chair Jerome Powell has signaled an earlier-than-expected policy pivot.

“The wildfire is gone, but bushfires continue,” Hong said, meaning that upward risks to prices persist even though disinflation has begun.

Risks include foreign exchange rates, according to Hong. As a country that relies heavily on imports for food and energy, South Korea needs stability in its currency. The BOK cited the depreciation of the won as a reason it conducted a bigger-than-usual rate hike in late 2022.

Consumer expectations for inflation also remain too high for comfort, Hong said. The index measuring the inflation outlook for one year ticked up to 144 last month, rising for the first time since October. Consumers also felt prices would rise 3% over the next year, whereas the BOK expects mid-2% inflation for 2024.

A resurgence in household debt is of particular concern, lending support to the case for a continued fight against asset bubbles, he said. 

Central bank efforts to quell appetite for debt have been at odds with recent government measures to shore up the housing market with programs such as special lending for lower-income families and lower mortgage rates for parents of newborns.

Inflation figures for February are scheduled for release early Wednesday.

©2024 Bloomberg L.P.