■ The slowdown in exports during H1 2023 and the subsequent rebound have been gradually manifested with a time lag, acting as a positive factor for domestic demand. However, the prolonged period of high interest rates is impeding the recovery of domestic demand.

- Although the subdued exports in H1 2023 negatively impacted domestic demand with a temporal delay, since H2 2023, exports have demonstrated stronger resilience, signaling a positive influence on domestic demand.

- Nevertheless, the adverse spillover effects of the policy stance for enduringly high interest rates continue to build up, offsetting the favorable spillover effects of the export recovery since H2 2023.

· Yet, recent indicators suggest that the additional constraints exerted on domestic demand due to elevated interest rates have somewhat abated.

■ As the positive spillover from the recent export recovery begins to fully manifest in domestic demand, a gradual rebound in domestic demand could occur, contingent upon a future shift in the monetary tightening stance.

- The negative impact of the sluggish exports in H1 2023 has recently dissipated, and the upward trajectory since H2 2023 is being reflected in domestic demand..

- However, even with a rate cut in H2 2024, the substantial time lag in monetary policy transmission means its full impact on domestic demand will likely be more pronounced in 2025, rather than 2024.

■ The recent export recovery that has not yet fully revived domestic demand amid high interest rates is a normal and unavoidable result of monetary policy aimed at achieving inflation stability.

-The underlying inflationary trend became significantly stabilized after mid-2023 when domestic demand started to contract, enabling Korea to achieve inflation stability faster than major advanced economies.

■ Moving forward, future monetary policy should remain proactive, considering the temporal delay of spillover effects of policy rate changes on domestic demand and inflation.

- The inflation stabilization trend since last year should be carefully analyzed to determine the optimal timing for easing the tightening stance and achieving the 2% medium-term inflation target.

- In attaining the target rate, it would be prudent to avoid measures that could disrupt inflation stabilization, such as aggressive demand-stimulation policies.