Seoul: South Korea's central bank is widely expected to lower its benchmark interest rate this week in a bid to support the slowing economy, a poll showed Sunday.
According to Yonhap News Agency, all seven economists polled said they expect the Bank of Korea (BOK) to cut its policy rate by 25 basis points to 2.50 percent from the current 2.75 percent at its rate-setting meeting Thursday. The move aims to boost consumer spending and corporate investment in the face of a slowing economy.
This anticipated rate cut follows government data indicating that the country's real gross domestic product (GDP) contracted by 0.2 percent from the previous quarter in the first quarter of the year. Experts also predict that the BOK will revise its 2025 growth outlook from the current 1.6 percent to below 1 percent.
Several private-sector research institutions have already adjusted their growth projections downwards. The state-run Korea Development Institute (KDI) recently halved its growth forecast to 0.8 percent from an earlier 1.6 percent. Additionally, the median 2025 growth forecast by eight major overseas investment banks stood at 0.8 percent as of the end of April.
The appreciation of the Korean won against the U.S. dollar may provide the BOK with additional leeway to ease policy, according to experts. The dollar had surged to 1,487.6 won on April 9 following reciprocal tariffs by the U.S. government. However, it weakened to 1,375.6 won on Friday amid uncertainty over U.S. trade policy and concerns about the country's fiscal deficit.
During its latest rate-setting meeting, the BOK held the policy rate steady at 2.75 percent, citing the nearly 1,500 won-per-dollar exchange rate as a key risk factor. Analysts believe that exchange rate pressures are unlikely to prevent a rate cut, as domestic political uncertainty continues to diminish.
They also noted that any monetary easing should be accompanied by fiscal measures, such as a supplementary budget, to support Asia's fourth-largest economy. South Korea's unexpected first-quarter contraction has been partly attributed to political instability following former President Yoon Suk Yeol's imposition of martial law on December 3, which led to his removal from office on April 4.
Experts anticipate that the BOK will further cut its key rate once or twice in the second half of the year to help the economy overcome its low-growth trend. The central bank is likely to lower the rate in August and November, in alignment with potential rate cuts by the U.S. Federal Reserve later this year, an economist suggested.