Anant Chandak
BENGALURU (Reuters) – The Bank of Korea will accept a January pass but will cut interest rates by a quarter of a point in February after an unexpected cut on Thursday to support a weakening economy, according to economists in a Reuters early poll.
To boost activity in Asia’s fourth-largest economy, which narrowly avoided recession last quarter, the BOK cut rates at a second straight meeting on Nov. 28 – the first consecutive cut since early 2009. Inflation remained largely under control.
However, BOK Governor Rhee Chang-yong said the future remains uncertain given President-elect Donald Trump’s plans to raise tariffs. The USA is one of South Korea’s biggest export destinations.
A large majority of economists, 16 out of 22 in a quick poll conducted on November 28-29, forecast that the BOK would cut its base rate by 25 basis points to 2.75% in February.
The other six forecast the next quarter-point cut in January.
“We now expect another reduction as early as February 2025 and a faster recalibration of the policy stance to neutral … while acknowledging the uncertainties associated with US trade policy – ​​the timing of tariffs, their coverage and their size – could change the trajectory,” Bum Ki Son, economist in Barclays (LON:), he said.
He was one of the few economists who correctly predicted the surprise contraction in November.
“As the BoK’s growth concerns also become structural, given increased competition and China’s aggressive investment, we believe the speed of policy normalization to neutral may be faster than we expected,” Bum Ki Son added.
The median of forecasts pointed to a cumulative cut of 75 basis points next year, which would take the benchmark rate to 2.25% by the end of September, compared with the 2.50% expected in a survey conducted before the central bank’s meeting on Thursday.
But there was no clear consensus on the rate at the end of September, with 11 of 22 economists forecasting 2.25%, 10 saying 2.50% and one saying 2.00%.
“The tone of Governor Rhee’s statement and press conference make it clear that further easing is on the way and that supporting economic growth is now the central bank’s top priority,” said Gareth Leather, senior Asia economist at Capital Economics.
“We expect growth to be problematic over the next year. While exports should continue to be strong, this is likely to be offset by further weakness in the labor market and continued problems in the real estate sector.”
BOK lowered its forecast for economic growth in 2025 to 1.9%, which is weaker than the previous forecast of 2.1%.
(Other stories from the Reuters World Economic Survey in November)
