BOK expected to slow monetary easing as Fed pauses rate cuts

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference at the central bank's headquarters in Seoul, Jan. 16.

Yonhap Rate cut still anticipated in February due to deepening economic downturn By Lee Yeon-woo The Bank of Korea (BOK) is expected to slow down the pace of its monetary easing as the U.S. Federal Reserve pauses rate cuts and adopts a more cautious stance toward inflation, market experts said on Thursday.



Mounting concerns over the Korean economy have fueled calls for the central bank to aggressively slash the key rate. However, it has been unable to do so, as further monetary easing widens the interest rate gap between Korea and the U.S.

, putting downward pressure on the value of the won against the dollar. However, given the worsening economic conditions following President Yoon Suk Yeol's shocking martial law imposition on Dec. 3 , many experts expect the BOK to lower the benchmark interest rate in February.

As of Thursday, the interest rate gap between Korea and the U.S. remains at 1.

5 percentage points after the Fed kept its policy target range between 4.25 and 4.5 percent per year .

This marks the Fed’s first pause in four meetings. "Going forward, the Fed is expected to carefully evaluate the need for policy rate adjustments at each meeting, considering the impact of government policy changes, incoming data, shifting economic outlooks and the balance of risks," the BOK’s Washington office said in a report. Fed holds rates steady, sees inflation as 'elevated,' as Powell declines comment on Trump 2025-01-30 06:58 | World Fed Chair Jerome Powell also stated that the Fed is in no rush to adjust its policy stance.

The Fed’s shift toward caution is expected to weigh heavily on the BOK, which aims to support sluggish domestic demand and counter growing downward risks amid the won's weakness against the dollar. "The BOK is likely to adopt a cautious approach rather than pursuing sharp rate cuts, considering the uncertainties surrounding the Fed and the new (Donald Trump) administration," Kiwoom Securities analyst Ahn Ye-ha said. In December, the won-dollar exchange rate climbed toward 1,480 won per dollar — a level not seen in 16 years, dating back to the 2008-09 global financial crisis.

At its Jan. 16 meeting, the BOK made a surprise decision to keep the policy rate at 3 percent after back-to-back cuts in October and November last year. However, experts believe it is unlikely for the central bank to hold the rate steady for two consecutive months, given the severity of domestic economic conditions.

Korea’s real gross domestic product (GDP) growth reached 2 percent for 2024 , down from the BOK's earlier projection of 2.2 percent. The economy grew by only 0.

1 percent in the fourth quarter from the year earlier. Even entering 2025, global investment banks and international forecasting agencies continue to lower their growth outlooks, putting Korea's GDP growth rate at slightly higher than 1 percent. The market now anticipates that the BOK may implement two to three additional rate cuts, including one in February.

Previously, expectations were for three to four cuts in 2025, but the outlook has weakened slightly. "The message from Rhee Chang-yong (at the January monetary meeting) almost warranted a 25-basis-point cut in the coming February meeting," Bank of America Global Research wrote in a report. "We think the BOK is waiting for further fiscal impulse as a signal for coordinated easing at the moment.

".