Value context and insight. lkm@koreatimes.co.kr
BOK to hold steady due to weak currency: Moody's, Fitch BMI
Dave Chia, left, associate economist at Moody’s Analytics, and Caroline Wong, analyst at BMI / Courtesy of each firm
By Lee Kyung-min
The Bank of Korea (BOK) is expected to leave the key rate unchanged at 2.75 percent during a monetary policy board meeting Thursday, hamstrung by the weakening Korean currency relative to the U.S. dollar, economists at the affiliates of global credit ratings agencies said Wednesday.
However, the rate decision will be a tough call, given the rapidly deteriorating trade outlook amid stagnant domestic demands, they added.
Dave Chia, associate economist at Moody’s Analytics, said the monetary easing will be delayed due to the won’s depreciation.
“We expect the Bank of Korea to keep interest rates unchanged because of currency weakness,” he told The Korea Times. “Although the won has appreciated against the U.S. dollar this past week, trading has been volatile, and the won remains significantly weaker than a year ago. Given the high level of uncertainty, it would be premature to conclude that the won is seeing a sustained recovery.
But the possibility of a rate cut is not entirely off the table, in his view.
“The trade outlook is deteriorating rapidly, and domestic demand has struggled to gain traction. Looming U.S. tariffs on several of Korea’s key exports pose a threat to the economy," he said.
Even if Korea avoids a significant ramp-up in U.S. duties, its deep integration into the global economy and supply chains means it would not come away unscathed, he added. “Still, we put the odds of a hold versus a cut at 60 to 40."
The central bank is likely to deliver at least one more rate cut this year, he said, citing the subdued state of the economy and muted inflationary pressure.
“We have revised our forecast for Korea's real GDP growth in 2025 downward by 0.3 percentage points to 1.2 percent to reflect the domestic and external headwinds to growth. Weak demand and limited retaliation to U.S. tariffs suggest that consumer price inflation is unlikely to reaccelerate," he said.
Similarly, Caroline Wong, an analyst at BMI, a Fitch affiliate, said whether the central bank will hold off from implementing its fourth cut at its meeting on Thursday remains a tough call for policymakers.
“We had thought that the BOK would want to assess the impact of the 75 basis-point cut thus far before easing further,” she said.
“No doubt the ongoing weakness in the Korean won could easily raise imported inflation, and a cut at this point would have injected further weakness to the already-ailing currency. However, we think inflation will be less of a concern due to weak demand-side pressure.”