Bank of Korea Likely to Hold Rate as It Weighs Trump’s Impact

(Bloomberg) -- The Bank of Korea is widely expected to leave policy unchanged this week as it weighs the impact of the first interest rate cut in more than four years last month and the implications of Donald Trump’s election victory.

Most Read from Bloomberg

Some 18 out of 22 economists surveyed by Bloomberg forecast a hold at 3.25% when the monetary policy committee meets Thursday in the first decision since the central bank began its policy pivot.

The other four expect a quarter-percentage-point cut, including Barclays Bank economist Bum Ki Son who pointed to economic uncertainties after Trump’s win on a platform that included higher tariffs for export-reliant nations like South Korea. The return of the former president has clouded South Korea’s economic outlook and already buffeted its currency.

The Korean won fell to a two-year low earlier this month, reflecting concerns that the president-elect’s policies will hurt trade. The currency is down nearly 9% this year, the second worst performer in Asia after the yen. The weakness in the won offers another reason for holding rates for now.

South Korea’s economy is highly exposed if Trump does roll out tariffs. Korea ranks eighth among nations with trade surpluses against the US. It also ships about one fifth of its exports to China, an economy targeted by Trump with potential tariffs of up to 60%.

Even before the US election, economists had begun to feel less optimistic about the economy due to the softening strength of exports. Still, even with slowing growth, cooling inflation and concerns about Trump policy, the BOK tends to avoid back-to-back rate cuts outside of moments of crisis.

Some economists have already pared back their projections for South Korea’s economic growth next year. The International Monetary Fund last week forecast 2.2% growth for this year and 2% for 2025, downward revisions in line with Bloomberg estimates.

Should the BOK follow suit by cutting its own projections, that would lay the ground for a faster rate-cutting pace next year.

Governor Rhee Chang-yong hasn’t spoken about the policy implications of Trump’s victory since the election, but board member Kim Jong-hwa said last week that the outcome of the US vote adds to policy uncertainties.

Bloomberg Economics expects four rate cuts to bring the rate to 2.25% by the end of 2025 and another one in early 2026 to shore up the economy. That’s a more aggressive pace of easing compared with the three reductions expected by other private economists in a Bloomberg survey published earlier this month.

“The mood is turning a bit dovish,” Cho Yong-gu, a fixed-income strategist at Shinyoung Securities. “It’d be a surprise if the bank cut this month, but I’m targeting a January cut.”

What to watch for:

  • After the BOK delivers its decision around 9:50 a.m. local time it will announce updated growth and inflation forecasts. In August the bank saw the economy expanding 2.4% in 2024 and 2.1% in 2025. Rhee already said growth this year would be closer to 2.2% or 2.3%, but any tweaks beyond that may fuel speculation of more aggressive rate cuts to come.

  • Should the bank hold as expected, the number of dissenters calling for a rate cut, if any, will offer a gauge of how soon the next rate move may come. Governor Rhee typically reveals the vote count early in a briefing that usually starts around 11:10 a.m.

  • The rate outlook among board members provides another key moment in the briefing. Last month five members said they saw the policy rate remaining at 3.25% three months after the October meeting, while one member was open to a rate cut during that time span. Those numbers should change markedly if a January move is in the pipeline.

  • Investors will also be looking out for other hints of the policy trajectory, such as comments on the inflation trend, domestic consumption, the local property market and household debt and the possible impact of Trump policy on the economy.

--With assistance from Hooyeon Kim.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.