Bank of Korea Likely to Cut Base Rate on the 29th… 0.25%P Reduction Expected

Forecast for Lower Growth Rate This Year

Stabilization of the Previously Constraining Won-Dollar Exchange Rate

Although the Federal Reserve (Fed) kept its base rate unchanged this month, the Bank of Korea is expected to lower the rate on the 29th to address domestic economic sluggishness.

According to the Bank of Korea on the 8th, the Monetary Policy Committee will hold a meeting on the 29th to decide whether to change the current base rate level (2.75%). The market is strongly anticipating a 0.25% point reduction in the base rate.

Bank of Korea Governor Changyong Lee hinted at a rate cut during a press conference following last month's Monetary Policy Committee meeting, stating that "all six members of the Monetary Policy Committee believe that the base rate should be lowered to below 2.75% within three months."

The expectation of a rate cut is also supported by the observation that the Bank of Korea will once again lower this year's growth rate forecast (1.5%), which was revised in February. Governor Lee also emphasized in a recent press conference that "the rate will be sufficiently lowered according to the economic situation." Initially, market experts expected two additional 0.25% point cuts this year, but recently they have been changing their forecasts to 'more than three cuts.'

The exchange rate, which has been a constraint on rate cuts, is also showing signs of stabilizing recently. Although the Fed kept the base rate unchanged, maintaining the Korea-U.S. base rate gap at 1.75% points, the won-dollar exchange rate ended the week at 1,396.60 won, down 1.40 won.

Yeo-sam Yoon, a researcher at Meritz Securities, predicted that "if the Fed maintains its rate cut stance, the Bank of Korea will consider the domestic economic situation more than the exchange rate or household debt when deciding monetary policy." However, if the Fed continues to keep the base rate unchanged contrary to market expectations, it could become burdensome for the Bank of Korea to lower rates.

Reporter Dongwook Jwa leftking@hankyung.com