The Bank of Korea (BOK) will cut its key interest rate by 25 basis points on Tuesday, offering support to an economy which barely grew last quarter, according to economists polled by Reuters who expected a further 50 points of easing this year.
After unexpectedly holding its policy rate steady last month, South Korea's central bank signaled it needed to wait for domestic political turmoil, which weighed on the currency, to stabilize before easing further.
With the won rebounding around 2.5% against the U.S. dollar this year and inflation at 2.2% in January, not far from the BOK's medium-term target of 2%, the central bank now has room to cut rates to support a weak economy.
All but one of the 36 economists polled February 14-20 expected the BOK to cut its base rate (KROCRT=ECI) by 25 basis points to 2.75% on Tuesday.
"We believe the BOK is going to cut by 25 basis points. They will be acknowledging that the economy will face a greater negative output gap, which justifies the BOK's move to address growth," said Stephen Lee, chief economist at Meritz Securities.
"As long as FX volatility remains subdued, I think there is a chance for the BOK to implement additional rate cuts this year."
The central bank, in its last policy statement, projected economic growth to be slower this year than the previously estimated 1.9% due to weaker exports, deteriorating consumer sentiment, and ongoing political turmoil, which is expected to remain a drag on growth this year.
Asia's fourth-largest economy, which heavily depends on semiconductor exports - particularly to the U.S. - faces significant risks from U.S. President Donald Trump's tariff threats against major trading partners, which could hit South Korean shipments.
That increases pressure on the BOK to cut policy rates to stave off a potential recession.
A strong majority of economists, 32 of 35, predicted a quarter-point rate cut to 2.50% in Q2, with most also forecasting another cut in Q3, bringing the rate 75 bps lower than currently, to 2.25%.
That was despite the U.S. Federal Reserve projected to make fewer or no cuts in coming months. A separate Reuters poll showed economists divided on the timing of the next Fed rate cut, with most expecting it by mid-year and some seeing it later or not at all.
Median forecasts showed Korean rates would remain unchanged at 2.25% in Q4 2025, a view unchanged from the January poll.
"Our view is the Fed will only cut once this year, in June... the U.S. (Fed) is pausing because they're getting closer to the neutral, but (BOK) still has some room to cut in order to get to the neutral," said Bum Ki Son, North Asia economist at Barclays.
(Other stories from the February Reuters global economic poll)
