"Bank of Korea to Cut Base Rate in Q3 Next Year... Final Rate Expected at 2.5%"

Lee Chang-yong, Governor of the Bank of Korea, is holding a press conference after the Monetary Policy Direction Decision Meeting of the Monetary Policy Committee held on the 30th at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

The Bank of Korea is expected to start lowering the base interest rate, currently at around 3.5% per annum, from the third quarter of next year, eventually reducing it to 2.5%.

According to Bloomberg Economics (BE), a research institute under Bloomberg, economist Kwon Hyo-sung recently forecasted this in a report. He believes that the Bank of Korea's rate hikes are effectively over.

The report stated that the Bank of Korea will lower the base rate by 0.25 percentage points around August next year, then reduce it by an additional 0.25 percentage points each quarter, ultimately reaching the neutral rate level of 2.5%.

Previously, the Bank of Korea had expressed its stance to maintain a sufficiently long tightening policy until it is confident that the inflation rate converges to the target level.

According to Lee Chang-yong, Governor of the Bank of Korea, among the six members of the Monetary Policy Committee excluding the governor, two expressed the opinion that "it is appropriate to maintain the base rate at the current level," while four held the view that "the possibility of further hikes should be kept open."

Economist Kwon delayed his forecast for the timing of the Bank of Korea's rate cuts by about four months compared to earlier projections, explaining that this is because he expects it will take longer for the inflation rate to fall below 2.5%.

The Bank of Korea also recently revised upward its consumer price inflation forecast for this year from 3.5% to 3.6%, and for next year from 2.4% to 2.6%, respectively.

Bloomberg Intelligence (BI), a unit under Bloomberg, recently forecasted in a report that the current inversion of the Korea-US base interest rates, which has widened up to 2 percentage points, is likely to continue for the time being.

While the US consumer price inflation is slowing down, raising expectations for rate cuts, many also point out that it is still premature to expect the Federal Reserve (Fed) to cut rates.

Governor Lee also said at a press conference following the Monetary Policy Committee meeting on the 30th of last month, in response to related questions, "I am aware that in the market there are opinions that not only the US but also the UK might soon start a rate-cutting cycle. However, when I attend BIS meetings and talk with central bank governors, it certainly seems that the market is moving ahead, but the central bank governors do not think so."