Bank of Korea Likely to Cut Rates Again Amid Economic Concerns

The Bank of Korea will lower its base rate by a quarter-point, one month ahead of schedule to help the faltering South Korean economy in the face of political unpredictability. According to the sources.

"Against a backdrop of heightened political uncertainty and intensifying growth concerns, we think the Bank of Korea will deliver its third straight 25 bp cut at its upcoming meeting. The case to move sooner rather than later has strengthened," said Krystal Tan, economist at ANZ.

Expectations of fewer U.S. interest rate cuts this year have been fueled by political unrest and high domestic household debt, while the Korean won has fallen to its lowest level in almost 15 years due to tariff threats from U.S. President-elect Donald Trump.

Recent KRW depreciation and worries about financial stability are the biggest obstacles to further rate decreases... More accommodating monetary policy would be required in the event of ongoing political unrest as well as direct U.S. tariffs on South Korean exports. The rate was lowered to 2.25 percent, which is regarded as the neutral rate, according to median estimates, which also projected a cut from the BOK in the second and third quarters. After that, a hold would be placed until at least the middle of 2026.

"Still-subdued domestic demand recovery, along with the sharp decline in consumer sentiment in part due to the domestic politics, likely mean that the board will continue to lower its policy rate towards neutral," said Jin Choi, Korea economist at HSBC.