MNI BOK WATCH: Rhee Flags More Cuts, No Hint Of Timing

Bank of Korea Governor Rhee Chang-yong on Tuesday flagged further rate cuts amid greater downside risk to growth, but failed to signal a clear easing timeline, following the monetary policy board's decision Tuesday to lower the Base Rate 25 basis points to 2.75%.

“It is judged that further adjustments to the Base Rate will be needed when considering economic conditions, while the timing and pace of additional rate changes will be determined by thoroughly assessing inflation, growth and financial stability based on newly obtained data, given the high uncertainties surrounding domestic and global policy conditions,” Rhee told reporters. 

The board's call was widely expected and was made despite reservations over the weakening won. (See MNI BOK WATCH: Board To Ease Base Rate To 2.75%)

“Although concerns about foreign exchange markets still remain, inflation stabilisation has continued along with an ongoing slowdown in household debt, and economic conditions are forecast to weaken significantly,” Rhee added. “The board, therefore, judged today that it is appropriate to further cut the Base Rate and mitigate downward pressure on the economy. All the Board members unanimously supported this decision.”

SOFTER ECONOMY

The deterioration of consumer sentiment since the end of 2024 had led to weak actual indicators and the new U.S. administration’s tariff policies had negatively affected domestic exports, the BOK said, warning of a prolonged economic slowdown.

The bank lowered its 2025 GDP forecast to 1.5% from the 1.9% prediction made in November. However, it left its 2026 estimate unchanged at 1.8%. (See chart)

While the main factor of the previous downward revision in the growth forecast in January were related to domestic issues, such as the declaration of martial law, heightened uncertainties, such as U.S. tariff policies, had weighed on the growth outlook, the BOK added. 

House prices continued to decline in most regions, despite some areas in Seoul recording significant increases, particularly among apartments, mainly due to the lifting of land transaction permit zones, the BOK continued. 

CPI STABLE

The BOK left its 2025 and 2026 consumer price index forecast unchanged at 1.9%. (See chart)

“Despite upward pressure from the exchange rate, inflation is expected to remain stable at around 2%, affected by subdued demand pressure,” Rhee noted.

However, exchange rate moves, global oil prices and economic conditions at home and abroad, will impact inflation's future path, alongside the government's price stabilisation measures, Rhee continued, noting fiscal policy represented the greatest area of uncertainty. While the government has yet to reveal the supplementary budget, it could drive growth if formulated and implemented in future, he argued. 

The next meeting is scheduled for April 17.