[비즈한국] Market attention is fixed on future interest rate paths after the Bank of Korea (BOK) defied expectations by implementing consecutive base rate cuts. On the 28th, the BOK held its final Monetary Policy Committee meeting of the year and decided to lower the base rate by 0.25 percentage points to 3.00% per annum. This follows the BOK's move last month, which was the first rate cut in 38 months. Most of the market had anticipated a hold. This marks the first time the BOK has decided to cut rates twice in a row since the period between October 2008 and February 2009, about 13 years ago.
Until now, BOK Monetary Policy Committee members had maintained a cautious stance regarding rate cuts. Before the cut last month, the BOK appeared hesitant due to concerns over household debt and real estate issues. However, the background for the surprise cut at this meeting includes lowered economic growth forecasts and uncertainties surrounding the Trump administration.
Through its economic outlook, the BOK revised its growth forecast for next year down from the previously presented 2.1% to 1.9%, and projected the growth rate for the following year to be 1.8%, lower than next year. Some have jokingly speculated that "the VIP" demanded another rate cut this time, and the BOK's move has left questions beyond simply breaking expectations.
Kong Dong-rak, an analyst at Daishin Securities003540, stated, "It is highly questionable whether the downward adjustment in economic forecasts alone was a powerful enough reason for the monetary authorities to change their course of action so significantly." He added, "If they have carried out consecutive rate cuts for the first time in 15 years, I suspect there may be issues or background factors beyond the lowered growth forecast that are relevant to this decision."
Alongside this, concerns are being raised regarding the rise in the won-dollar exchange rate caused by the rate cuts. BOK Governor Rhee Chang-yong emphasized, "We have sufficient foreign exchange reserves to manage exchange rate volatility," adding, "We are discussing expanding the amount and extending the duration of the foreign exchange swap with the National Pension Service."
Lee Kyung-min, an analyst at Daishin Securities, predicted, "While rate cuts can stimulate pressure for a weaker won, the potential for additional downward pressure is limited given that the won has already been in a weakening phase against the dollar," adding that "the won-dollar exchange rate will likely stabilize downward depending on the flow of the dollar." He further explained, "One of the various reasons for the sluggishness of the Korean stock market is the continued absence of fiscal and monetary policy. Rate cuts are a variable that can stimulate policy expectations and psychological expectations for economic recovery."
The BOK's decision is clearly focused on "economic growth." Kim Ji-na, an analyst at Eugene Investment & Securities001200, said, "The most important point is that they prioritized the economy over the exchange rate in making the monetary policy decision," adding, "While there are various policy tools for exchange rates through cooperation with the government, their stance is that rate cuts are necessary to support the economy as a whole."
Kang Seung-won, an analyst at NH Investment & Securities005940, also mentioned, "The main message of this rate cut is that 'growth' is now clearly the key variable in the Bank of Korea's policy decisions," noting, "Even considering the effects of the rate cut, the BOK forecasts a 1.8% growth rate for 2026, which indicates that they see the downside risks to growth as quite significant."
Accordingly, the consensus is that there is a possibility for further rate cuts, with many observing that an additional cut will likely be implemented in the first quarter of next year. Kim Sang-hoon, an analyst at Hana Securities, said, "Given that there is still room to cut rates toward the neutral rate, and considering the removal of the word 'cautiously' which implies adjusting the pace, an additional cut in the first quarter of next year is appropriate," but added, "Since the January meeting is on the 16th, we cannot confirm fourth-quarter growth data, and as it will be before Trump's inauguration, February would be more appropriate." Cho Yong-gu, an analyst at Shinyoung Securities001720, projected, "Considering the Governor's press conference, he signaled a fast-paced cut toward the upper end of the neutral rate (2.75%)," adding, "An additional cut during the first quarter is inevitable, and the pace of rate cuts may be adjusted thereafter."
However, stock market investors may remain exposed to short-term volatility until the end of the year. This is because the U.S. employment report is scheduled for the 6th, the FOMC meeting for the 19th, and investors must re-verify the rate-cutting cycles of major global countries including the U.S., China, and Europe. Experts predicted that if the U.S. economic momentum remains solid, the rate-cutting cycles of major countries continue, and economic recovery begins, domestic exports and corporate earnings, which have been sources of concern, will also improve.