Daishin: "Bank of Korea Likely to Cut Rate by 0.25% Next Week... Further Reductions Expected in Second Half"

Daishin Securities has forecast that the Bank of Korea will lower its base interest rate by 0.25 percentage points, from the current 2.75% to 2.50%, at the Monetary Policy Board meeting in May. The firm also anticipates additional rate cuts in the second half of the year, with the base rate expected to reach 2.25% by the end of the year.

In a report released on the 23rd, Gong Dongrak, a researcher at Daishin Securities, stated, "In response to heightened trade uncertainty and downside risks to the economy, the central bank is likely to pursue an accommodative monetary policy, cutting rates again in May following the reduction in February." The May policy meeting is scheduled for the 29th.

Gong pointed out that recent increases in downside economic risks, particularly due to trade uncertainty originating from the United States, have changed the nature of the rate cuts. "While the initial rate cut was limited to normalization, the purpose has now expanded to include economic stimulus," he noted.

He also cited comments by Bank of Korea Governor Rhee Changyong, who suggested earlier this month that rates would be lowered sufficiently, signaling an accommodative policy stance. Gong further mentioned that at the April policy meeting-when the base rate was held steady-all six board members provided forward guidance indicating a need for a rate cut within three months, effectively foreshadowing a May reduction.

Gong added, "The revised economic outlook to be released at this policy meeting will also support the possibility of a rate cut," and predicted that the Bank of Korea would lower its growth forecast for this year in light of recent economic indicators. The central bank's growth projection in February was 1.5%.

Additionally, Gong expects further rate cuts in the second half of the year. He explained, "Persistent downside risks to growth, combined with the anticipated pro-growth policy direction following the inauguration of the new administration in the second half, could lead to additional base rate reductions. Coordination with fiscal policy, such as the formulation of a second supplementary budget in the latter half, is another reason to expect further rate cuts." He projected a year-end base rate of 2.25%.