Korea: Central Bank decreases rates in February
Latest bank decision: At its meeting on 25 February, the Central Bank decided to lower the base rate by 25 basis points, from 3.00% to 2.75%.
Monetary policy drivers: The key domestic factors influencing the Central Bank’s decision were moderate inflation—which has been below or close to the Central Bank’s 2.0% target in recent months—an ongoing slowdown in household debt, and a projected significant slowdown in economic growth going forward.
Monetary easing on the cards ahead: The Central Bank hinted that it would cut rates further going forward, without specifying when or by how much. Our Consensus is for 25 to 75 basis points more cuts by the end of 2025, in light of our forecasts for mild price pressures and economic growth.
Panelist insight: On the outlook, DBS’ Ma Tieying said:
“We maintain our forecast for the BOK to reduce rates by another 25bps in 2Q, bringing the base rate to 2.50%. CPI inflation is expected to remain around 2% YoY through 1H, providing further room for the BOK to adjust rates toward a neutral level. However, concerns over household debt and KRW volatility suggest that the BOK is likely to proceed cautiously with the pace and scale of rate cuts to mitigate potential side effects.”
ING’s Min Joo Kang said:
“We expect the BoK to ease three more times in 2025, once per quarter, as a lower-than-neutral rate is needed to support growth. This is 25bp lower than the BoK’s current assumption.”