Pedestrians cross the road in front of the Bank of Korea headquarters in Seoul on July 13, 2022. .
Jung Yeon-je | AFP | Getty Images
The Bank of Korea lowered its benchmark interest rate by 25 basis points to 3.25%. This is the first rate cut by the Bank of Korea since the Federal Reserve began to tighten monetary policy in March 2022.
That’s consistent with a Reuters poll of economists predicting a rate cut.
The move came after South Korea’s inflation hit its lowest level in more than three years (1.6% in September), well below the Bank of Korea’s 2% target.
As early as August 2021, the Bank of Korea began to raise interest rates, raising interest rates by 300 basis points in just 16 months, reaching a 15-year high of 3.5% in January 2023.
South Korea’s inflation rate was 2.6% at the time, but it climbed sharply to 6.3% in July 2022, the highest level in more than 20 years.
In an Oct. 4 report ahead of the decision, Morgan Stanley chief Korea economist Kathleen Oh called the action “long awaited,” noting that 22 months have passed since the last rate adjustment in January 2023. months.
Oh noted that macro conditions are conducive to a rate cut and that the inflation backdrop is “favorable.” The report said, “Since July this year, we have continued to see weak inflationary pressures, and with the strength of the U.S. dollar, Korean won and global oil prices, upward risks to inflation appear to have receded.”
In addition, Morgan Stanley said that housing demand is the main factor preventing the Bank of Korea from cutting interest rates at its monetary policy meeting, but housing demand has weakened, making Bank of Korea members more dovish.
Oh expects the Bank of Korea to cut interest rates three times in a row on a quarterly basis, following its 25 basis point cut in October, eventually lowering the benchmark interest rate to 2.5%.
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