The Bank of Korea Hints at Interest Rate Cut... Will It Lower Rates in July?

First Forward Guidance on Base Rate Cut by the Monetary Policy Committee
Minority Opinion for May Rate Cut and Q3 Reduction Outlook

On the morning of the 22nd, the Monetary Policy Direction Decision Meeting of the Financial Monetary Committee was held at the Bank of Korea in Jung-gu, Seoul. Photo by Joint Press Corps

The Bank of Korea's Monetary Policy Committee issued forward guidance on an interest rate cut for the first time since the rate hike cycle. The market expects a dissenting opinion for a rate cut to emerge in May, with a full-scale rate cut starting from the third quarter.

At a press conference following the Monetary Policy Committee meeting on the 22nd, Lee Chang-yong, Governor of the Bank of Korea, said, "One member of the Monetary Policy Committee suggested keeping open the possibility of lowering the base rate below 3.5% within three months." The governor added that the member "expected inflationary pressure to weaken due to consumption being weaker than initially forecast and emphasized the need to prepare in advance for sluggish domestic demand, so the possibility of an early rate cut cannot be ruled out."

The market interpreted the remarks of the Monetary Policy Committee member as dovish (accommodative). It was seen as a clearer signal from the committee that the base rate could be cut in the future.

Im Jae-kyun, a researcher at KB Securities, explained, "The fact that one member of the Monetary Policy Committee forecasted a rate cut at this meeting is a factor that raises market expectations for a rate cut. This member’s opinion is the first forward guidance on a rate cut following the rate hike cycle."

Weaker-than-expected domestic demand is also a factor boosting expectations for a rate cut. In the revised economic outlook announced that day, the Bank of Korea lowered its forecast for private consumption growth this year by 0.3 percentage points to 1.6%, and also revised down the annual core inflation forecast from 2.3% to 2.2%. It analyzed that domestic demand contraction continues as consumers close their wallets due to high inflation and high interest rates. Accordingly, the economic growth forecast for this year, excluding the semiconductor and IT (Information Technology) sectors, was lowered from 1.7% to 1.6%.

Market experts expect the Bank of Korea to cut the base rate as early as the second quarter or at the latest by the third quarter of this year. An Ye-ha, a researcher at Kiwoom Securities, said, "At this meeting, one member argued that the possibility of a rate cut within three months should be kept open, making the meeting somewhat dovish. A dissenting opinion may appear in the second quarter, and from the third quarter, the base rate is expected to be cut three times within the year, lowering the year-end rate to 2.75%."

Jo Yong-gu, a researcher at Shin Young Securities, also stated, "With the emergence of rate cut opinions within the Monetary Policy Committee and the Bank of Korea governor mentioning room for policy differentiation amid the US pivot atmosphere, a dissenting opinion for a rate cut could appear as early as May. After that, the Bank of Korea is expected to cut the base rate starting from the third quarter."

There are also opinions that the base rate will be cut more quickly due to the difficult domestic demand situation. Kang Seung-won, a researcher at NH Investment & Securities, said, "With one member of the Monetary Policy Committee opening the possibility of a rate cut within three months, the option for a cut has been placed on the Bank of Korea’s table for the first time. Given that the core inflation rate in the second quarter is expected to fall below 2.5%, even if not unanimous, the base rate is expected to be cut for the first time in May."

This content was produced with the assistance of AI translation services.