Synopsis
The Bank of Korea is expected to lower the policy rate by 0.25 percentage points as analysts predict a decrease to 2.75 percent amid economic challenges. Business sentiment has also fallen, highlighting concerns over domestic demand and growth forecasts.Key Takeaways
- Predicted interest rate cut of 0.25 percentage points.
- Rate expected to drop to 2.75 percent.
- Weak domestic demand cited as a major issue.
- Business sentiment at a four-year low.
- Growth forecast may be revised downward.
Seoul, Feb 21 (NationPress) The central bank of South Korea is anticipated to cut its policy rate by 0.25 percentage points next week to bolster the economy, according to a poll released on Friday.
A survey carried out by Yonhap Infomax, the financial news division of Yonhap News Agency, revealed that 20 out of 21 local analysts surveyed expect the Bank of Korea (BOK) to reduce its base rate to 2.75 percent from the current 3 percent during its upcoming rate-setting meeting scheduled for Tuesday.
In January, the BOK maintained its benchmark interest rate amid a depreciating local currency and political instability caused by uncertainties surrounding U.S. President Donald Trump's administration.
This decision to hold came after two previous rate reductions in October and November, as reported by Yonhap News Agency.
Kim Seon-tae, an analyst from KB Kookmin Bank, stated, "The nation is grappling with increasing downside pressures stemming from weak domestic demand, while further depreciation of the won appears constrained, prompting the BOK to lower the policy rate by 25 basis points."
Out of the 21 analysts surveyed, 19 projected that the key rate would decrease to 2.5 percent in the first half of this year.
The central bank is set to reveal an updated growth forecast on Tuesday. BOK Governor Rhee Chang-yong has indicated a potential reduction in the growth outlook to approximately 1.6 percent from the previous estimate of 1.9 percent.
South Korea's potential growth rate stands at 2 percent, and this year might mark the first instance where the nation's annual growth rate dips below this threshold.
Additionally, business sentiment in South Korea has plummeted to its lowest level in over four years this month, primarily due to weak domestic demand and economic uncertainties, as per a poll from the central bank.
The Composite Business Sentiment Index (CBSI) for all industries in February registered at 85.3, down 0.6 points from the previous month, according to the BOK survey.
This represents the lowest reading since September 2020, when the index hit 83 during the COVID-19 pandemic.
The index has been on a steady decline since November, with sentiment deteriorating significantly after Yoon's unexpected and brief declaration of martial law on December 3, which led to his impeachment and arrest.
