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(Seoul=Yonhap Infomax) Min Jae Lee – Australia and New Zealand Banking Group Ltd. (ANZ) expects the Bank of Korea to keep its key interest rate unchanged at the upcoming Monetary Policy Board meeting on the 27th.
Crystal Tan, economist at ANZ, told Yonhap Infomax on the 24th, "We anticipate the Bank of Korea will maintain its current base rate of 2.50% at the next meeting."
Tan explained, "There has been no substantial improvement in the two main constraints that led to the rate hold in October—namely, the real estate market and the exchange rate."
She added, "The stronger-than-expected third-quarter GDP growth also reduces the need for additional monetary policy support."
Regarding the revised economic outlook, Tan said, "Given the better-than-expected Q3 results and robust semiconductor exports, the Bank of Korea is likely to raise its GDP growth forecasts for 2025 and 2026, currently at 0.9% and 1.6%, respectively." ANZ projects GDP growth of 1.1% for 2025 and 1.8% for 2026.
On the future rate path, Tan noted, "It is premature for the Bank of Korea to declare an end to the monetary easing cycle. Growth remains below potential, and the anticipated US Federal Reserve-led policy easing in 2026 could help alleviate FX constraints."
She continued, "Within ANZ, we expect the Fed to implement three additional 25bp cuts."
Tan also stated, "Unless inflation and inflation expectations rise persistently, it is unlikely the Bank of Korea will shift to a hawkish stance in 2026."
She pointed out, "With debt service and delinquency ratios still above historical norms, a rate hike would increase the debt repayment burden for South Korea's highly leveraged economy."
However, Tan assessed that the threshold for further easing measures has risen.
"For a rate cut to materialize, several key conditions must be met, including stabilization in the housing market and a stable USD/KRW exchange rate to ease concerns over imported inflation. Currently, neither condition has been satisfied," she said.
Tan further commented, "If the Bank of Korea officially raises its 2026 growth forecast above 2%, it would signal confidence in a return to potential growth, reducing the need for additional stimulus."
mjlee@yna.co.kr
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