Bank of Korea Gov. Rhee Chang-yong, center, presides over a Monetary Policy Committee meeting at the central bank in Seoul, Aug. 22. Yonhap

Korea's central bank is likely to cut the country's key lending rate for the first time in 38 months this week in order to spur domestic spending amid inflation having recently slowed down to manageable levels, market experts have said.

According to a survey recently conducted by Yonhap News Agency on seven domestic economic experts, six predicted the monetary policy committee of the Bank of Korea (BOK) to lower the base interest rate by 0.25 percentage point to 3.25 percent at its monthly rate-setting meeting scheduled on Friday.

If realized, the cut would mark a policy pivot as the central bank has either raised or frozen borrowing costs since August 2021.

Many experts noted that the BOK will not be able to delay a rate cut any longer, especially after consumer price inflation dropped to 1.6 percent in September — which is below the government's target rate of 2 percent — while concerns remain in areas of domestic spending and investment.

The U.S. Federal Reserve also implemented a significant rate cut of 0.50 percentage points last month, while Korea's administrative and legislative branches have called for a policy pivot to address economic woes.

Park Jung-woo, an economist at Nomura Securities, stated, "The consumer price inflation rate fell to 1.6 percent in September, which marks a positive development."

He added, "with domestic demand sluggish and export growth expected to slow, pressure is being added for the BOK to lower the key rate."

Ahn Ye-ha, an analyst at Kiwoom Securities, noted, "While concerns about inflation have eased, anxieties of an economic slowdown are growing, leaving the BOK with little choice but to respond with a rate cut."

LG Economic Research Institute's Cho Young-moo echoed the sentiment. "Given the trends in private consumption, investment and overall economic sentiment, interest rates should have already been cut," the researcher said.

"The BOK is under strong pressure from the government and the National Assembly to lower rates to revive domestic demand, which has been stifled by high interest rates and inflation," another expert who participated in the survey said.

He added, "I believe it will be hard for them to resist much longer."

Although conditions for a rate cut may be ripe in terms of inflation, experts have also raised questions about the stability of rising housing prices and household debt, which are also key considerations.

Due to such concerns, Min Ji-hee, a bond analyst at Mirae Asset Securities, said the BOK is more likely to postpone an interest rate cut until November.

"Although household debt in September slowed compared to July and August, it's difficult to conclude that the trend has reversed based on data of just one month, especially considering the effects of last month's Chuseok holiday," Min noted. (Yonhap)