Bank of Korea to cut rates in Feb following Thursday's surprise move as economy wavers: Reuters poll

Published 12/01/2024, 07:50 PM
Updated 12/01/2024, 07:56 PM
© Reuters. FILE PHOTO: The logo of the Bank of Korea is seen in Seoul, South Korea, November 30, 2017.  REUTERS/Kim Hong-Ji/ File Photo
USD/KRW
-

By Anant Chandak

BENGALURU (Reuters) - The Bank of Korea will take a pass in January but cut interest rates by a quarter-point in February following an unexpected reduction on Thursday to support a weakening economy, according to economists in a Reuters snap poll.

To boost activity in Asia's fourth-largest economy, which narrowly avoided a recession last quarter, the BOK cut rates for a second meeting in a row on Nov. 28 - the first back-to-back reductions since early 2009. Inflation has largely stayed under control.

However, BOK Governor Rhee Chang-yong said the future remains uncertain given President-elect Donald Trump's plans to hike tariffs. The U.S. is one of South Korea's largest export destinations.

A strong majority of economists, 16 of 22 in a snap poll conducted Nov. 28-29, forecast the BOK would cut its base rate by 25 basis points to 2.75% in February.

The other six predicted the next quarter-point cut would come in January.

"We now expect one more cut as early as February 2025 and a faster recalibration of policy stance to neutral ... while acknowledging uncertainties related to U.S. trade policy – the timing of the tariffs, their coverage, and their magnitude – could alter the path," Bum Ki Son, economist at Barclays (LON:BARC), said.

He was one of the few economists to correctly predict the surprise November cut.

"With the BOK's concern on growth also becoming structural, given intensified competition and China's aggressive investment, we believe the speed of policy normalisation to neutral could be faster than we expected," Bum Ki Son added.

Median forecasts indicated a cumulative 75 basis-point cut next year, bringing the policy rate to 2.25% by end-September, compared with 2.50% expected in a poll taken before Thursday's central bank meeting.

But there was no clear consensus on the rate at end-September, with 11 of 22 economists forecasting 2.25%, 10 saying 2.50% and one 2.00%.

"The tone of the statement and Governor Rhee's press conference makes clear that further easing is on the way and that supporting economic growth was now the central bank's main priority," Gareth Leather, senior Asia economist at Capital Economics, said.

"We expect growth to struggle over the coming year. Although exports should continue to perform strongly, this is likely to be offset by further weakness in the labour market and the continued struggles of the property sector."

© Reuters. FILE PHOTO: The logo of the Bank of Korea is seen in Seoul, South Korea, November 30, 2017.  REUTERS/Kim Hong-Ji/ File Photo

The BOK downgraded its forecast for economic growth in 2025 to 1.9%, weaker than the previous forecast of 2.1%.

(Other stories from the November Reuters global economic poll)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.