MNI BOK WATCH: Board To Hold, Eye Future Cuts

The Bank of Korea board is expected to keep its base rate steady at 2.50% this Thursday, despite rate cuts expected later this year due to economic pressures mounting from U.S. trade policies.

“The economy is weak and is likely to remain weak for the time being as domestic and overseas demand will not recover immediately,” an expert familiar with South Korea’s economy told MNI.

The BOK is expected to adopt a cautious wait-and-see approach, balancing financial stability concerns amid high household debt and monitoring the impact of the government’s supplementary budget, he added.

The board delivered a 25 basis cut at the May 29 meeting, bringing cumulative easing since October 2024 to 100bp. Governor Rhee Chang-yong flagged further cuts amid greater downside risk to growth, but failed to signal a clear easing timeline. (See MNI BOK WATCH: Rhee Flags More Cuts, No Hint Of Timing)

While the BOK aims to support economic recovery and maintain price stability, close attention will focus on Rhee’s outlook for future monetary policy, with the next policy meeting scheduled for Aug 28.

RATE PATH

Observers anticipated further cuts in Q3, Q4, or early 2026 as the bank awaits greater clarity on rising household debt levels and the effects of macroprudential tightening on leverage before resuming its easing.

The 25% U.S. reciprocal tariffs and ongoing negotiations until Aug 1 are also weighing on business sentiment and investment, another source said. Domestic demand remains weak despite the government’s supplementary budget, which is expected to improve the demand outlook gradually, particularly once cash handouts begin in late July, the source noted.

The BOK will also monitor the government’s mortgage measures and potential prudential policies that aim to cool the property market. These factors could pave the way for future rate cuts, the source argued.

The consumer price index rose 2.2% in June, up from 1.9% in May and matching January’s peak, but further acceleration is not expected. (See chart)