South Korea Central Bank Expected to Lower Interest Rates to Support Economy
The Bank of Korea (BOK) is widely anticipated to reduce its key interest rate by 25 basis points on Tuesday, signaling support for an economy that grew at a sluggish pace last quarter.
Economists surveyed by Reuters predict a further 50 basis points of monetary easing this year. After holding its policy rate steady last month due to domestic political uncertainty, the central bank now has room to cut rates as inflation remains close to its target and the won has rebounded against the U.S. dollar.
35 of 36 economists polled expect the BOK to lower its base rate to 2.75% on Tuesday. "The BOK acknowledges a widening output gap, justifying its move to stimulate growth," said Stephen Lee, chief economist at Meritz Securities.
The central bank projects economic growth to be slower than previously estimated due to weaker exports, declining consumer sentiment, and ongoing political turmoil. With the U.S.-China trade dispute posing risks to South Korea's semiconductor exports, pressure mounts on the BOK to cut rates to prevent a potential recession.
The majority of economists (32 of 35) forecast a quarter-point rate cut to 2.50% in Q2, with another cut anticipated in Q3, bringing the rate down to 2.25%. This aligns with the Fed's expected pause in rate cuts, as per a separate Reuters poll.
"The Fed's limited rate reductions leave room for the BOK to cut to reach neutrality," said Bum Ki Son, North Asia economist at Barclays.