South Korea's January Interest Rate Decision: Cut Rates by 25 bps to 2.75% to Address Economic Slowdown and Keep Inflation Stable

Data Interpretation

Summary:

Amidst a global economic slowdown and escalating domestic political uncertainty, the Bank of Korea has opted to lower its benchmark interest rate. This strategic move aims to mitigate the adverse impacts of a potential economic downturn while simultaneously maintaining price stability. Despite persistent concerns regarding the foreign exchange market, inflation remains contained, and household debt continues to decelerate. Consequently, a significant contraction in economic growth is anticipated.

On February 25, 2025, the Bank of Korea announced its monetary policy decision, which is detailed as follows:

The Bank of Korea reduced the base interest rate by 25 basis points, from 3.00% to 2.75%. This move is intended to mitigate the downward pressure on the economy and address both domestic and international challenges. Despite the continued uncertainty in the foreign exchange market, the committee deemed a timely interest rate cut as appropriate for promoting economic stability, given the sustained stability of inflation, the slowdown in household debt growth, and the expectation of a significant decline in the growth rate.

The global economy faces heightened downside risks to growth, coupled with increased uncertainty in the inflation trajectory, particularly under the influence of U.S. tariff policies. Although concerns in global financial markets regarding the new U.S. government's economic policies have eased, and the likelihood of an end to the Russia-Ukraine war has increased, leading to a reversal of the dollar's strength and a decrease in long-term government bond yields in major countries, the global economy and financial markets will continue to be affected by U.S. tariff policies, monetary policy adjustments by major economies, and geopolitical risks.

South Korea's domestic economy is experiencing a slowdown in consumption and export growth, attributed to heightened political uncertainty and adverse weather conditions. The labor market continues to exhibit weakness, leading to expectations of subdued recovery in domestic demand and export expansion in the near term. Consequently, the economic growth forecast for the current year has been revised downward to 1.5%, a decrease from the 1.9% projected in November. The trajectory of future economic growth remains subject to considerable uncertainty, particularly influenced by the trade policies of major economies, the monetary policy of the U.S., and the domestic political landscape.

Consumer price inflation rose to 2.2% in January, primarily driven by fluctuations in global oil prices and exchange rates. However, core inflation, which excludes changes in food and energy prices, remained stable at 1.9%. Short-term inflation expectations for February were slightly adjusted downward to 2.7%. Despite upward pressure on exchange rates, inflation is anticipated to stabilize around 2% due to weak demand. The consumer price inflation forecast for the current year is maintained at 1.9%, consistent with the November projection, while core inflation is marginally adjusted to 1.8%.

In the financial and foreign exchange markets, the KRWUSD has exhibited considerable volatility, influenced by domestic political instability, U.S. tariff policies, and the Federal Reserve's monetary policy. Yields on long-term Korean government bonds have also been affected by expectations of interest rate cuts, experiencing a decline followed by a rebound. Housing prices have decreased in most regions nationwide, excluding Seoul, while the growth of household loans continues to decelerate.

Overall, despite the slowdown in household debt growth, vigilance is warranted regarding a potential rebound in household debt following interest rate decreases, as well as the high volatility of the exchange rate. Consequently, the committee will closely monitor changes in both domestic and international economic policies, as well as the domestic political situation, to determine the timing and extent of any further adjustments to the benchmark interest rate based on economic conditions.

South Korea's January Interest Rate Decision

Risk Warnings and Disclaimers

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Alex

Commodity

Gold held steady near a record high on Tuesday, underpinned by safe-haven demand on concerns that US President Donald Trump's tariff plans could fuel inflation and trigger a major global trade war.

Spot gold was little changed at US$2,950.39 an ounce, as of 0220 GMT, about US$6 shy of the all-time high of US$2,956.15 scaled on Monday. US gold futures gained 0.1% to US$2,967.40.

Market participants may be back to factor for tariff risks, as the extended deadline for Mexico and Canada tariffs approaches next week, IG market strategist Yeap Jun Rong said.

Trump said on Monday tariffs on Canadian and Mexican imports were "on time and on schedule" despite efforts by the countries to beef up border security and halt the flow of fentanyl into the US ahead of a March 4 deadline.

Meanwhile, investors and economists expect the US Federal Reserve to respond "strongly and systematically" to changes in inflation and the labour market.

"This week's lineup of Fed policymakers may deliver some hawkish rhetoric, but with market expectations already pricing in a prolonged rate hold over the next two meetings, the impact on gold prices may be more contained," Yeap said.

Gold is considered a safe investment during economic and political uncertainties, and thrives in a low interest rate environment.

Investors await the US Personal Consumption Expenditures report, the Fed's preferred inflation gauge, for insights into the rate-cut path. The report is due on Friday.

Elsewhere, India's gold imports are set to fall 85% in February from a year earlier to their lowest in two decades, with demand sapped by record bullion prices.

Spot silver climbed 0.3% to US$32.45 an ounce. Platinum was flat at US$966, and palladium was down 0.4% at US$936.25.

Source: Theedgemarkets

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FastBull Featured

Daily News

[Quick Facts]

1. Putin: Russia and the U.S. could agree on a 50% reduction in military armaments

2. Leading German Chancellor candidate seeks to establish a "Black-Red Coalition"

3. The EU's industry ministers will convene to address steel tariffs

4. Dhingra: Internal disagreement exists within the BOE on the race of rate cuts

5. Trump: Negotiations with Putin on ending the Russia-Ukraine conflict and bilateral issues are progressing smoothly

[News Details]

Putin: Russia and the U.S. could agree on a 50% reduction in military armaments

During a statement made on the 24th, Russian President Vladimir Putin indicated that Ukrainian President Volodymyr Zelenskyy is avoiding the commencement of peace negotiations, as such talks would necessitate the revocation of martial law and the organization of elections. However, Zelenskyy's current approval ratings are only half of those of Valerii Zaluzhnyi, the former Commander-in-Chief of the Ukrainian Armed Forces and current Ambassador to the UK. Putin stated that the decree signed by Zelenskyy, which prohibits negotiations with Russia, has placed him in a precarious position. Putin also emphasized that Russia does not object to the preservation of Ukrainian statehood, but its territory should not be utilized as a hostile base against Russia.

Furthermore, Putin suggested that European nations should participate in the negotiation process concerning the Ukrainian issue. He clarified that he and U.S. President Donald Trump have not engaged in substantive discussions regarding the resolution of the Ukrainian conflict. He also disclosed that Russia and the U.S. could potentially reach an agreement to reduce military armaments by 50%. Putin added that Russian and American companies have initiated discussions on collaborative projects, and Russia intends to resume aluminum exports to the U.S., with a target of 2 million tons, which would contribute to stabilizing the price of this commodity.

Leading German Chancellor candidate seeks to establish a "Black-Red Coalition"

On February 24, Merz, the Christian Democratic Union (CDU) chairman and the leading candidate for chancellor from the CDU/CSU, the largest party in the new Bundestag, announced his intention to hold discussions with the Social Democratic Party (SPD), the third-largest party in the new Bundestag and the party of current Chancellor Scholz. He is prepared to negotiate with the SPD to form a "Black-Red Coalition" and establish a coalition government. (Note: The CDU/CSU's representative color is black, while the SPD's is red.) In response, Klingbeil, the co-chair of the SPD, stated that it is currently uncertain whether the SPD will join the new government.

The EU's industry ministers will convene to address steel tariffs

According to Agence France-Presse, the French Ministry of Industry announced on Monday evening that European industry ministers will meet in Paris on Thursday to discuss measures to sustain European steel production and address U.S. tariffs. The European steel industry is being impacted by U.S. President Trump's executive order, which, disregarding warnings from Brussels, imposed a 25% tariff on imported steel and aluminum starting March 12. The French Ministry of Industry indicated that ministers from approximately 15 European steel-producing countries are expected to attend the Paris meeting. Participants will share findings and solutions with other stakeholders from the steel industry, including "enterprises and trade unions," and are expected to sign a joint statement on safeguarding the European steel industry.

Dhingra: Internal disagreement exists within the BOE on the race of rate cuts

In a speech on Monday, Bank of England (BOE) Monetary Policy Committee member Dhingra expressed concern about the impending rise in inflation, which coincides with significant projects. Excluding housing, producer prices in the services sector are experiencing a "substantial rebound."

There is clear evidence that the labor market is cooling. Job vacancies in retail and hospitality may decrease, as these sectors have fewer vacancies than before the COVID-19 pandemic. While wages have increased, consumption has not, indicating that "something has changed in this process." Household savings are not "chasing" goods and services. Consumer spending may remain weak, and inflationary pressures will be contained.

The media's interpretation of "gradual" as a 25-basis-point rate cut per quarter is inconsistent with the committee's official statements. Even with a 25-basis-point reduction each quarter, monetary policy would remain in restrictive territory for the year, according to most metrics. My personal interpretation of "gradual" differs from the media's, and this divergence within the Monetary Policy Committee indicates a lack of consensus on the future pace of rate cuts.

Dhingra, who has consistently maintained a dovish stance on the Monetary Policy Committee, was among the officials who supported a 50-basis-point cut in the last policy meeting, along with Mann.

Trump: Negotiations with Putin on ending the Russia-Ukraine conflict and bilateral issues are progressing smoothly

On the 24th, U.S. President Trump stated via social media that he is engaged in serious discussions with Russian President Putin regarding the cessation of the Russia-Ukraine conflict and significant economic development transactions between the U.S. and Russia, with negotiations advancing favorably. He also mentioned that he addressed the G7 summit alongside French President Macron on the same day. He noted that all parties expressed a desire for the conflict's resolution. He emphasized the importance of the "critical minerals and rare earth agreement" between the U.S. and Ukraine, expressing hope for its prompt signing.

[Today's Focus]

UTC+8 10:45 Reserve Bank of Australia Assistant Governor Jones Delivers a Speech

UTC+8 17:20 Dallas Fed President Logan Delivers a Speech

UTC+8 18:00 Deutsche Bundesbank President Nagel Releases Annual Report

UTC+8 21:00 ECB Executive Board Member Schnabel Delivers a Speech

UTC+8 23:00 U.S. February Conference Board Consumer Confidence Index

UTC+8 00:45 Fed Governor Barr Delivers a Speech

UTC+8 02:00 Richmond Fed President Barkin Speaks on Inflation

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Bank of England

Remarks of Officials

On February 24th, Dhingra delivered a speech at the University of London, highlighting the following points:

The UK economy remains in a state of stagnation. "While wages have increased, consumption hasn't, implying something has changed somewhere along the way." Household savings are not "chasing" goods and services. Consumer spending is likely to remain weak, and the economy has yet to fully recover.

The UK labor market is gradually cooling down. Job losses in retail and hospitality are likely because that's where vacancies are below pre-Covid levels. Moreover, the rising bankruptcy rate among small businesses suggests that downward economic pressures are accumulating. Although wages have increased, consumer spending remains weak, and household savings have not translated into actual consumption, thereby dampening inflationary pressures to some extent.

UK inflation has declined from its peak, but the January CPI was higher than expected. Driven by a rebound in energy prices, the inflation rate hit a higher-than-forecast 3% in January and is forecast by the BOE to reach 3.7% in the third quarter. However, Dhingra believes that inflationary pressures are not out of control and noted that some sectors, such as service producer prices, are actually showing disinflationary signs. "Consumption weakness isn't going away" Dhingra said. "We basically aren't recovering fully and I think that's the reason that I have been much more on the side of wanting to reduce the level of restriction that we see in the economy. We need to eliminate the adverse effects of policy on the economy more swiftly."

Overall, facing persistent inflationary pressures and weak economic growth, Dhingra supports a more substantial interest rate cut to alleviate the restrictive pressures on the economy. Gradual rate cuts may hold back the economy, and she emphasized the impact of the cooling labor market and weak consumer spending on inflation. Although the committee ultimately decided on a 25 basis point cut, the internal divergence on the future policy path is evident.

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Justin

Economic

Containers are skacked to be shipped at a port in Busan, Feb. 12.

The Bank of Korea (BOK) on Tuesday sharply lowered its outlook for Korea's economic growth this year to 1.5 percent amid slowing export growth and weak domestic demand.

The latest figure marks a 0.4 percentage-point fall from its projection presented in November.

The country's potential growth rate is at 2 percent, and this year may mark the first time ever that the country's yearly growth rate falls below the level.

The BOK's latest projection is more pessimistic than those of other major institutions.

The finance ministry earlier forecast the economy to grow 1.8 percent this year, and the Organization for Economic Cooperation and Development (OECD) presented a 2.1 percent expansion.

Presenting a bleaker forecast, the BOK lowered its key rate by a quarter-percentage point to 2.75 percent.

As for inflation, the BOK maintained its estimate for 2025 at 1.9 percent.

Source: Koreatimes

To stay updated on all economic events of today, please check out our Economic calendar

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Justin

Economic

Bank of Korea Gov. Rhee Chang-yong strikes the gavel during a Monetary Policy Board meeting at the Bank of Korea headquarters in Seoul, Feb. 25. Joint Press Corps

Korea's central bank slashed its benchmark interest rate by a quarter percentage point on Tuesday in an effort to shore up economic growth amid weak domestic demand and uncertainties at home and abroad.

The monetary policy committee of the Bank of Korea (BOK) cut its key rate by 25 basis points to 2.75 percent during a rate-setting meeting in Seoul.

The move came a month after its rate freeze decision, which was aimed at supporting the weak local currency while assessing the impact of two rate cuts in the October and November meetings.

Tuesday's decision underlined the central bank's policy focus on economic growth as it lowered its 2025 growth outlook for Asia's fourth-largest economy to 1.5 percent from its previous forecast of 1.9 percent.

Source: Koreatimes

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Cohen

Economic

Commodity

Gold is nearing the $3000/oz mark, potentially reaching it briefly before a pullback.

Concerns about the stock market and a murky Fed outlook are driving investors towards gold.

Key economic data releases this week include US GDP and PCE data.

Risk aversion persisted in the markets today, as the end of February draws to a close. The risk aversion tone is a result of the ongoing uncertainty of US trade and tariff policy.

President Trump agreed to suspend tariffs for one month on Canada and Mexico in exchange for certain concessions. Will the tariffs be delayed again and scrapped entirely, is the question on the minds of market participants?

Golds Impressive 2025 – More to Come?

The Gold price rally in 2025 has also coincided with a weaker US Dollar.

Is the gold rally exhausted or will a touch of $3000/oz occur this week? That is the pertinent question this week, as $3000/oz remains a possibility.

By Friday, gold had climbed for the eighth week in a row, marking its best streak since 2020, which saw nine straight weeks of gains. While this could indicate the rally is losing steam, gold is so close to the $3,000 mark that it’s likely to at least touch that level briefly before pulling back.

Will Gold Outperform Stocks in 2025?

There is a growing belief that Gold prices may outperform stocks in 2025 as market concerns keep the metal elevated. Excluding the uncertainties around tariffs, central banks are another piece of the puzzle, with the Fed outlook in particular seeming murky.

Concerns around the stock market being overvalued and with retailers concerned about performance moving forward, this is becoming a real possibility.

Source: LSEG, Isabelnet

Data for the Rest of the week

Traders will keep an eye on the US GDP report for the fourth quarter of 2024, due later this week. Recent signs of a slowdown in the US economy, like Friday’s weaker Services PMI data, have added to the interest in this report.

There are also a host of Federal Reserve policymakers who will be speaking this week. The biggest event though from my point of view will be the Feds Preferred inflation gauge, the PCE data release on Friday.

Given the recent uptick in inflation, Fed Chair Powell urged caution about reading too much into the data. He mentioned that the Fed prefers the PCE data and thus making this data release a massive one.

Technical Analysis – Gold (XAU/USD)

Gold saw a pullback in Asian trade before bulls took control once more, propelling the precious metal to fresh all-time highs around 2956.

This move was met by significant selling pressure pushing price back down to 2930. Is this a sign of waning bullish momentum?

That is the question as the huge psychological $3000/oz handle lies in wait.

Bulls remain firmly in control at present with a break of 2956 opening up a test of 2975 on route to 3000.

I still think the 3000 handle will be hit, but the precious metal may struggle to find acceptance above this level at the first time of asking.

When we compare the current 8-week gold rally to the 9-week rally in 2020, the current one shows stronger momentum. Back in 2020, the rally ended with a bearish hammer indicating a pullback, but last week, gold closed near its highs.

Unless we see a clear reason to sell, like a drop in the stock market, gold might still hit $3,000 briefly. However, $3,000 is a significant level, and many might take profits quickly if it gets there.