Korea’s central bank to cut rates on Jan 16, may ease only once this quarter amid political turmoil: Reuters poll Reuters
Anant Chandak
BENGALURU (Reuters) – Korea’s central bank will cut its key interest rate by a quarter of a point on Thursday, a month earlier than previously expected, to support South Korea’s struggling economy amid risks from political uncertainty, according to a Reuters poll of economists.
Acting President Choi Sang-mok faces the delicate task of managing Asia’s fourth-largest economy amid public anger over attempts to arrest impeached President Yoon Suk Yeol and a government that is lowering its growth outlook for 2025 to 1.8% from 2.2%.
Political turmoil and high domestic household debt sent the Korean won to its weakest in nearly 15 years, while threats of tariffs by US President-elect Donald Trump fueled expectations of a smaller US interest rate cut this year.
About 80% of economists, 27 out of 34, polled from January 8-13 expect the BOK to cut its base rate by 25 basis points to 2.75% on January 16. The remaining seven predict that there will be no changes.
A survey in November after the surprise cut in the base rate to 3.00% showed that most economists expected the bank to cut rates next in February.
“Against a backdrop of increased political uncertainty and growing concerns about growth, we think the Bank of Korea will deliver its third straight 25bp cut at its upcoming meeting. The case to move sooner rather than later has strengthened,” said Krystal Tan, economist at ANZ .
“The main obstacle to successive rate cuts is the recent weakness of the KRW and concerns about financial stability… Prolonged political instability and/or direct US tariffs on South Korean exports would require a more accommodative monetary policy.”
Median forecasts showed one cut in the BOK this quarter and the same move in the second and third quarters, lifting the rate to 2.25% – considered a neutral rate. This would be followed by a hold until at least mid-2026.
Half – 14 out of 28 – who had forecasts until the end of the year expected a base rate of 2.25%. Still, eight forecast it at 2.50% and six at 2.00%, underscoring the uncertain outlook ahead of Trump’s January 20 inauguration.
“The still muted recovery in domestic demand, coupled with a sharp decline in consumer sentiment due in part to domestic politics, likely means the board will continue to cut its benchmark rate towards neutral,” said Jin Choi, Korea economist at HSBC.
“However, we note that a significant change in the future path of US Fed policy could limit BOK easing going forward.”
(Other stories from the Reuters World Economic Survey in January)
