Bank of Korea to kick off easing cycle with 25 bps cut on Oct 11: Reuters poll By Reuters

By Veronica Dudei Maia Khongwir

BENGALURU (Reuters) – The Bank of Korea will cut its key interest rate by 25 basis points to 3.25 percent on Friday, according to most economists polled by Reuters, who expect it to be the only cut this year as it tries to balance growth. and financial stability.

Inflation eased sharply to 1.6% in September from 2% in August, the lowest since early 2021 and below the Bank of Korea’s (BOK) medium-term target of 2%. Since its last meeting in August, the central bank has shifted its focus to economic growth, which unexpectedly contracted last quarter.

However, the BOK is likely to proceed with caution when cutting rates as rising household debt and a heated housing market pose risks to financial stability.

All but three of the 37 economists surveyed expected the central bank to cut its key rate by 25 basis points on Oct. 11, taking rates to 3.25 percent. The rest said they don’t change.

If it goes through, the BOK will join fellow Asian bank Bank Indonesia and the Philippine central bank, which have started cutting interest rates before the US Federal Reserve began its own easing campaign with a 50 basis point cut this month past.

Suktae Oh, chief Korea economist at Societe Generale (OTC: ), said the big Fed rate cut and South Korea’s growth and inflation data supported the case for a BOK rate cut this month, but added that further reductions in the short term are unlikely.

“Lingering concerns about the housing market will make it difficult for policymakers to explicitly propose a further rate cut in the near future, in other words, it would reduce the likelihood of a back-to-back rate cut in November,” he said.

Among economists who provided a year-end forecast, about 84 percent, or 27 out of 32, said 3.25 percent. Five predicted another rate cut of 25 basis points. That outlook was largely unchanged from an August survey and in line with market expectations.

Survey data showed the BOK will cut rates more slowly than some of its regional peers, with a total of 50 basis points of cuts next year, taking rates to 2.75 percent by the end of 2025.

“We expect the BOK to end the year at 3.25%, followed by two more 25bp cuts in 2025 to 2.75% … and it is likely to take a break there,” said Kelvin Lam, senior economist at Pantheon Macroeconomics.

“However, the BOK may speed up or slow down the rate of cuts depending on external factors, as they do not want the Korean won to fluctuate or depreciate too much.”

Following the U.S. Fed’s rate cut in September and expectations for two more this quarter, the Korean won gained about 4 percent after hitting its weakest level this year in mid-April.

Korea’s economic growth will improve this year to an average of 2.4 percent from 1.4 percent last year before slowing to 2.1 percent in 2025, the survey medians showed.

(Other stories from October’s Reuters Global Economic Survey)