Fitch Ratings Predicts Base Rate Reduction

In a recent announcement, Fitch Ratings, the international credit rating agency, has projected a substantial decrease in the Bank of Korea's base rate from 2.75% to 1.75% by the year's end. This prediction was made during the 'Fitch on Korea 2025' conference held in Seoul, highlighting concerns over the country's economic slowdown.

Economic Challenges Prompting Policy Shift

Jeremy Zook, Fitch’s director of sovereign ratings for Asia-Pacific, pointed to declining growth forecasts and weak domestic demand as key factors behind the anticipated monetary policy adjustment. The Bank of Korea's recent report of a -0.2% preliminary real GDP growth rate for the first quarter underscores the economic challenges, with both domestic demand and exports showing signs of weakness.

Household Loans and Inflation Management

Despite household loans posing a challenge to monetary easing, Zook expressed confidence in the Bank of Korea's ability to manage inflation effectively. He noted the resilience of the labor market and the potential for a slight economic rebound towards the end of the year, thanks to reduced debt repayment burdens from the expected rate cut.

External Risks and Fiscal Policies

Zook also highlighted the vulnerability of the Korean economy to U.S.-originated tariffs, particularly in the automotive sector, which accounts for a significant portion of exports to the U.S. Looking ahead, he anticipated that the new government, following the June 3 presidential election, would likely adopt expansionary fiscal policies, with national debt expected to trend slightly upward.

Credit Rating Outlook

Concluding his analysis, Zook explained the decision to maintain Korea’s credit rating outlook as "Stable," citing the country's excellent external and fiscal balances, as well as the resilience of its institutions and systems amidst political volatility.