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The Bank of Korea (BOK) is widely expected to lower its benchmark interest rate by 25 basis points to 2.50% on May 29, marking its first cut since 2022. This anticipated move comes as South Korea’s economy shrank 0.2% in Q1 and inflation remains close to the BOK’s 2.0% target, sitting at 2.1% in April. A stronger Korean won, which has rebounded around 9% from recent lows, has further supported expectations for monetary easing.
All 36 economists surveyed by Reuters between May 19 and 25 predicted a rate cut, aligning with signals from BOK Governor Rhee Chang-yong during the April policy meeting. Analysts noted that weak GDP data, U.S. tariff uncertainties, and the falling USD/KRW exchange rate reinforce the need for a policy shift.
Looking ahead, 23 of 27 economists forecast the policy rate will fall further to 2.25% by the end of Q3. Additionally, 56% of respondents expect another 25 basis point cut by year-end, bringing the rate to 2.00%.
Besides monetary stimulus, economists anticipate increased fiscal support, especially following the June presidential election. This follows the approval of a 13.8 trillion won ($10.1 billion) supplementary budget earlier this month.
Kathleen Oh, chief Korea economist at Morgan Stanley, suggested that once rates hit 2.00%, the central bank may focus on financial stability while shifting the responsibility for economic growth to the government starting next year.
A separate Reuters poll showed South Korea’s 2025 GDP growth is expected at 1.3%, slightly above the IMF’s 1.0% estimate, though economists predict the BOK will revise its 1.5% growth forecast downward this week.
