Central Bank decreases rates in November

Latest bank decision: At its meeting on 28 November, the Central Bank decided to lower the Base Rate by 25 basis points, from 3.25% to 3.00%. This followed a same-sized cut at the prior meeting, and contrasted market expectations for a hold.

Monetary policy drivers: The decision to cut interest rates was driven by easing headline and core inflation, a slowdown in household debt accumulation, and downward pressure on economic growth. In line with this, the Bank revised down its forecasts for inflation and GDP growth for this year and next.

Policy outlook: The Central Bank stated that future decisions will be data-driven, with no pre-set rate path. The exchange rate and the level of household debt will likely be areas the Bank focuses on particularly closely before embarking on further cuts. Our Consensus is for around 50 basis points of cuts next year, with risks skewed towards more aggressive monetary easing given possible U.S. tariff hikes.

Panelist insight: On the outlook, United Overseas Bank’s Ho Woei Chen said: “The BOK will need to watch the impact of its two rate cuts on the property market. We now expect additional 25 bps rate cut per quarter in 1Q25 and 2Q25 to bring the benchmark rate to its terminal level at 2.50%.” ING’s Min Joo Kang said: “While we thought that the BoK sets its policy rate relative to the Fed and would be concerned about exhausting its policy options by cutting rates early, the surprise rate cut signalled that the BoK's policy priority is growth, not short-term financial market stability. The Bank of Korea expects low interest rates to ease the debt repayment burden on households and businesses while the government's macroprudential measures slow the growth of private debt. […] For these reasons, we now expect the BoK to deliver four rate cuts: a 25 bp cut by each quarter in 2025 to a terminal rate of 2.0%.”

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