Goldman Sachs "Bank of Korea Likely to Cut Rates Again in January… Final Rate at 2.25%"

Global investment bank Goldman Sachs expects the Bank of Korea to cut its benchmark interest rate by 0.25 percentage points at the Monetary Policy Committee (MPC) meeting on the 16th. This analysis is based on the weakening growth momentum and downside risks to domestic demand.

Kwon Goo-hoon, a senior economist at Goldman Sachs, stated in a report on the 14th, "The MPC's decision to ease the benchmark interest rate will be based on weakening growth momentum and sluggish domestic demand," adding, "Inflation is generally on a downward trend, and household debt is decreasing due to the slowdown in housing transactions."

Goldman Sachs expects the MPC to take a dovish stance. Economist Kwon noted, "Despite growing uncertainties related to U.S. monetary and trade policies and domestic politics in Korea, the Bank of Korea has recently shown a preference for monetary easing."

The exchange rate is not expected to significantly influence the Bank of Korea's decision, due to strategic hedging by the National Pension Service and foreign exchange regulations by commercial banks. The National Pension Service's currency hedging involves selling some of its overseas assets in forward contracts, which has the effect of lowering the won-dollar exchange rate.

Previously, the Bank of Korea cut the benchmark interest rate twice in a row. Goldman Sachs forecasts that after an additional cut in January, the Bank of Korea will adjust the pace of rate cuts. Goldman Sachs projects that the MPC will further cut rates by 0.25 percentage points in each of the next two quarters, bringing the final rate for the year down to 2.25%. The current benchmark interest rate is 3%.

The report also advised that "monetary policy easing will occur alongside meaningful fiscal stimulus measures, a reduction in political uncertainties, and clarity on U.S. trade policies."

Park Soo-bin, Hankyung.com reporter waterbean@hankyung.com