Bank of Korea to Initiate Easing Cycle with 25 Bps Cut on October 11, According to Reuters Poll

By Veronica Dudei Maia Khongwir

BENGALURU – The Bank of Korea is set to reduce its key interest rate by 25 basis points to 3.25% on Friday, as anticipated by a majority of economists surveyed. This is likely to be the only cut for the year as the bank seeks to balance economic growth with financial stability.

Inflation in South Korea fell to 1.6% in September, down from 2% in August, marking its lowest level since early 2021 and dropping below the central bank’s medium-term target of 2%. Since its last meeting in August, the Bank of Korea has shifted its focus towards supporting economic growth, especially following unexpected contraction in the previous quarter.

Despite the planned rate cut, the central bank is expected to exercise caution due to the risks posed by rising household debt and an overheated property market, which could jeopardize financial stability.

In a poll conducted from October 1 to 7, 34 out of 37 economists predicted a 25 basis point reduction in the base rate on October 11. The remaining economists forecast no change.

If the anticipated cut occurs, the Bank of Korea will join other Asian central banks, such as Indonesia and the Philippines, which began implementing rate cuts prior to the U.S. Federal Reserve’s easing campaign, which started with a 50 basis point reduction last month.

Suktae Oh, chief Korea economist at Societe Generale, noted that the large rate cut by the Fed and South Korea’s economic indicators support the case for the Bank of Korea’s rate adjustment this month. However, he expressed doubt about additional cuts in the near future due to ongoing concerns surrounding the housing market.

Among economists projecting year-end outcomes, approximately 84% forecast the rate will settle at 3.25%, while five predict another 25 basis point cut. This outlook has remained largely unchanged since the August survey and aligns with market expectations.

Forecasts indicate that the Bank of Korea will adopt a slower rate-cutting approach compared to some regional counterparts, with a total of 50 basis points in cuts expected next year, leading to a rate of 2.75% by the end of 2025.

Kelvin Lam, a senior economist at Pantheon Macroeconomics, commented, “We expect the Bank of Korea to conclude the year at 3.25%, followed by two more 25 basis point cuts in 2025, with a pause thereafter.” He added that the pace of future cuts may vary depending on external factors to avoid excessive fluctuation or depreciation of the Korean won.

Following the U.S. Fed’s rate cuts in September and the anticipation of more in the near term, the Korean won has appreciated by about 4% since reaching its lowest level for the year in April.

Poll medians suggest that Korea’s economic growth is projected to improve this year, averaging 2.4%, compared to 1.4% in the previous year, before decelerating to 2.1% in 2025.