By Rahul Trivedi
BENGALURU (Reuters) – The Bank of Korea (BOK) will lower its key policy rate by 25 basis points on Thursday as economic activity contracted in the last quarter and benign inflation supports the case for easing, a Reuters poll of economists found.
BOK Governor Rhee Chang-yong signalled the possibility of a rate cut at the April meeting, days before official data showed South Korea’s economy contracted 0.2% in the first quarter from the previous three months.
With inflation at 2.1% in April – close to the BOK’s 2.0% target – and the Korean won rebounding around 9% from last month’s low, the central bank has more space to resume its easing cycle.
All 36 economists polled between May 19-25 expected the BOK to cut its base rate by 25 basis points to 2.50% on May 29, a level last seen in August 2022.
“At the April meeting, policymakers strongly suggested that there would be a rate cut and the near-term growth forecasts could be revised downwards,” said Suktae Oh, chief Korea economist at Societe Generale.
“Since then, we have not seen anything in the data that would be likely to deter them. Indeed, the Q1 GDP contraction, continued uncertainty on U.S. tariffs and the decline in the USD/KRW exchange rate further support monetary easing.”
Among those who provided a longer-term outlook on rates, a strong majority of economists, 23 of 27, expected the key interest rate to fall by 50 basis points from current level to 2.25% by the end of next quarter, a view broadly unchanged from the previous poll.
However, a slight majority, 15 of 27, or around 56%, forecast an additional 25 basis point cut by the end of the fourth quarter, bringing the rate to 2.00%, a quarter percentage point lower than in the previous poll conducted in April.
Apart from monetary easing, economists in the poll also pointed to the likelihood of fiscal support following the presidential election in early June, on top of the 13.8 trillion won ($10.1 billion) supplementary government budget approved this month.
“After lowering the (interest rate) to 2.00%, we see the BOK prioritising financial stability while passing the baton for boosting growth to the government from next year,” wrote Kathleen Oh, chief Korea economist at Morgan Stanley.
The South Korean economy was expected to grow 1.3% this year, a separate Reuters poll found, higher than the International Monetary Fund’s forecast of 1.0% and the BOK’s projection of 1.5%, which most economists said will be revised downward on Thursday.
(Other stories from the May Reuters global economic poll)
(Reporting by Rahul Trivedi; Polling by Devayani Sathyan and Pranoy Krishna in BENGALURU and Jihoon Lee in SEOUL; editing by Barbara Lewis)
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