Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
BOK expected to lower key rates this month amid deepening economic downturn
Bank of Korea (BOK) Gov. Rhee Chang-yong speaks during a press briefing after the BOK's monetary policy meeting at its headquaters in central Seoul, April 17. Yonhap
By Yi Whan-woo
The Bank of Korea (BOK) is widely expected to deliver a rate cut later this month to counter the deeper-than-expected economic downturn as evidenced by a 0.2 percent GDP contraction in the first quarter of the year, economists said Tuesday.
They said the benchmark interest rate is likely to be lowered from the current 2.75 percent to 2.5 percent at the BOK’s monetary policy meeting on May 29.
They also expect a possible 0.25 percentage cut will materialize in tandem with the government’s latest supplementary budget worth 13.8 trillion won ($9.9 billion).
“Timing plays a crucial role in reversing the economic downward spiral, and the BOK’s rate cut will be inevitable this month,” Hanyang University economics professor Ha Joon-kyung said.
The professor pointed out Korea’s economy contracted for the first time in nine months in the January to March period. “Such downward momentum may last in the remaining three quarters of 2025 if corresponding measures are not taken in a timely manner.”
Shin Se-don, professor emeritus of economics at Sookmyung Women's University, assessed the 13.8 trillion won extra budget is not sufficient enough to drive up the pace of GDP growth and that other supportive measures will be “decisive to reach the growth goal.”
Both the Ministry of Economy and Finance and the BOK forecast that the country’s economy would expand slightly lower than 2 percent in 2025. But the estimate did not take into account a quarterly GDP contraction for any of the four quarters.
“A lowered interest rate will help money flow in the economy, especially at a time when people refrain from spending due to the high cost of living," Shin said.
He noted that private spending, a twin engine of the country’s economic growth along with exports, fell 0.1 percent quarter-on-quarter in the January to March period.
Exports also fell 1.1 percent in the same time period.
Asked whether the rate cut will drive up inflationary risks, Shin said such risks are “at a relatively secure level than the growth-related risks.”
Consumer prices in Korea grew by 2 percent or slightly higher for the fourth consecutive month this year, including April, when it gained 2.1 percent from a year before.
The BOK wants to keep the overall inflation rate at 2 percent or lower for 2025, meaning the current pace of inflationary growth is a little higher than the BOK’s target.
Nevertheless, the BOK assessed inflation so far remains “generally stable” in its review of price trends on Friday.
A Hana Bank researcher, on condition of anonymity, said the Korean won’s gain against the U.S. dollar may be “another plus factor” for the BOK to consider a rate cut this month.
The researcher noted that the won, after weakening toward the 1,500 won level per dollar, rose to the 1,300 won level during intraday trading on Friday.
It was the first time the local currency recovered to the 1,300 level since Dec. 3, when now-ousted President Yoon Suk Yeol made his ill-fated marital law declaration.