Korea: Central Bank decreases rates in October
Latest bank decision: At its meeting on 11 October, the Central Bank decided to lower the base rate by 25 basis points, from 3.50% to 3.25%—the first rate cut since 2020.
Monetary policy drivers: The decision to adjust interest rates was primarily influenced by mild inflation, a slowdown in household debt growth due to tightened macroprudential policies, and the easing of risks in the foreign exchange market.
Policy outlook: The Central Bank suggested it would cut rates further going forward, though did not say when or by exactly how much. Most panelists see no further monetary easing this year, but do see rate cuts in 2025 as inflation is expected to stay muted at close to 2%.
Panelist insight: On the outlook, United Overseas Bank’s Ho Woei Chen said:
“The tone is more hawkish than expected with the majority of the board members leaning towards a rate hold at the 28 Nov monetary policy decision which will be the last meeting this year. Clearly, the household debt and property market remain a concern for the central bank. As such, we now expect the BOK to stay put in Nov and resume cutting interest rate in 1Q25. We pencil in 25 bps rate cut per quarter in 1Q25 to 3Q25, with the benchmark rate to decline to its terminal level at 2.50% in 3Q25.”
ING’s Min Joo Kang said:
“Analyzing Governor Rhee’s comments and statement, a November cut is off the table and we see March as the likely time for the next cut. […] The BoK seems to be well aware of the risks of rate cuts in the face of rising housing debt. Therefore, it will be a while before the BoK takes further easing steps.”