Citi economist Jinwook Kim forecasts that the Bank of Korea will implement five rate cuts by May 2026, bringing the benchmark rate down to 1.50%. The cuts are expected to occur in May, August, and November 2025, as well as February and May 2026. The terminal rate of 1.50% is anticipated by the second quarter of 2026, with a rate of 2.00% projected for the fourth quarter of 2025.
Given recent risks to growth and inflation, a 50 basis point cut in May is increasingly likely, although a 25 basis point reduction may be chosen for financial stability. Additionally, the government is expected to expand fiscal stimulus, with an additional budget of 50 trillion won ($35 billion) anticipated this year, up from a previous forecast of 35 trillion won.
Citi has revised its GDP growth forecast for South Korea, lowering it to 0.6% for this year and 1.3% for the next year.
