Bank of Korea expected to cut interest rate next week

Seoul: The South Korean central bank is widely expected to lower its policy rate by 0.25 percentage point next week in an effort to prop up the economy, a poll showed on Friday.

According to a survey conducted by Yonhap Infomax, the financial news arm of Yonhap News Agency, 20 out of 21 local analysts and experts polled predicted the Bank of Korea (BOK) will cut its base rate to 2.75 per cent from the current 3 percent at its next rate-setting meeting slated for Tuesday.

In January, the BOK kept its benchmark interest rate frozen in the wake of the weak local currency amid political chaos and uncertainties stemming from U.S. President Donald Trump’s new administration.

The on-hold decision came on the heels of two rate cuts in the October and November meetings, reports Yonhap news agency.

“The country is facing growing downside risks centering on weak domestic demand, while the won’s further weakness seems limited, which would lead the BOK to lower the policy rate by 25 basis points,” said Kim Seon-tae, an expert from KB Kookmin Bank.

Nineteen out of the 21 analysts polled anticipated the key rate to be lowered to 2.5 per cent in the first half of this year.

The central bank is scheduled to present an adjusted growth forecast on Tuesday. BOK Gov. Rhee Chang-yong has hinted at slashing the outlook to around 1.6 per cent from its previous forecast of a 1.9 per cent expansion.

South Korea’s potential growth rate is at 2 per cent, and this year may mark the first time ever that the country’s yearly growth rate falls below the level.

Meanwhile, South Korea’s business sentiment fell to the lowest in over four years this month due mainly to weak domestic demand and economic uncertainties, a central bank poll showed.

The Composite Business Sentiment Index (CBSI) in all industries for February came to 85.3, down 0.6 point from the previous month, according to the survey by the BOK.

It marked the lowest level since September 2020, when the index came to 83 amid the COVID-19 pandemic.

The index has been on a constant decline since November, with the sentiment worsening markedly after Yoon declared a shocking, albeit short-lived, martial law on Dec. 3, which led to his impeachment and arrest.

—IANS