"Korean Central Bank to Lower Base Rate to 1.75% by Year-End," Says International Credit Rating Agency

International credit rating agency Fitch has forecasted that the Bank of Korea will lower the base rate to 1.75% by the end of this year.

Jeremy Zook, Fitch's Director of Asia-Pacific Sovereign Ratings, stated on the 25th that the Korean economy will face several headwinds, including tariffs from the United States, resulting in export stagnation and weak domestic demand.

He said, "If the reciprocal tariffs by the Trump administration in the United States are realized, it will significantly impact the Asia-Pacific region, which has many export-oriented countries and high exposure to the U.S. market," adding, "Even excluding basic or reciprocal tariffs, Korea is a target for item-specific tariffs. In the case of automobiles, they account for one-third of exports to the U.S., which will pose macroeconomic challenges."

He continued, "As the Bank of Korea announced yesterday, domestic consumption and investment are showing weakness, leading to a lower growth outlook," predicting that an accommodative monetary policy will be implemented as a response.

As for the specific timing, he anticipated that an expansionary fiscal policy would be implemented once a new government is established after the early presidential election in June.

He noted, "While it is difficult to predict the outcome of Korea's election," he added, "Historically, the Democratic Party has expanded fiscal policy when in power," and predicted that "national debt will slightly trend upward." However, he assessed that Korea has "room to tolerate" the increase in national debt.

Meanwhile, he explained that Fitch maintained Korea's credit rating outlook as 'Stable' in February, stating, "Despite political volatility, we confirmed that the external balance and fiscal balance are sound," and evaluated that "Korea's various institutions and systems have resilience."

Song-ryeol Lee, Hankyung.com reporter yisr0203@hankyung.com