The Bank of Korea may announce a 25 basis point interest rate cut next Tuesday to address the slowdown in economic growth. According to a survey of economists, the market generally expects the Bank of Korea to cut interest rates by 75 basis points this year in response to economic challenges caused by external trade concerns and weak domestic consumption.

Previously, the Bank of Korea unexpectedly kept interest rates unchanged last month, citing the hope of waiting for the impact of domestic political turmoil on the currency market to subside before making a decision. With the South Korean won recovering by 2.5% against the US dollar this year and January inflation falling to 2.2% (close to the Bank of Korea's medium-term target of 2%), the central bank now has more room to adjust interest rates to support weak economic growth.

According to a survey conducted from February 14th to 20th, among the 36 economists interviewed, except for one, all others expect the Bank of Korea to cut interest rates by 25 basis points at its February meeting, bringing the benchmark rate down to 2.75%.

We expect the Bank of Korea to cut interest rates by 25 basis points. The central bank will acknowledge that the economy is facing a larger negative output gap, so a rate cut is reasonable to address the slowdown in growth. "- Stephen Lee, Chief Economist at Meritz Securities

As long as the fluctuations in the foreign exchange market remain within a controllable range, the Bank of Korea may still further cut interest rates this year, "Stephen Lee added

In its latest policy statement, the Bank of Korea stated that due to factors such as weak exports, declining consumer confidence, and domestic political instability, economic growth will be lower than the previously predicted 1.9%. Analysts believe that these factors may continue to suppress this year's economic performance.

As the fourth largest economy in Asia, South Korea's economy is highly dependent on semiconductor exports, especially to the US market. However, the recent tariffs imposed by the US government on major trading partners may pose a threat to South Korea's exports, exacerbating downward pressure on the economy.

Against the backdrop of policy uncertainty at the Federal Reserve, there are still divergent views in the market regarding the path of interest rate cuts by the Bank of Korea. According to a survey, 32 out of 35 interviewed economists predict that the Bank of Korea will cut interest rates by another 25 basis points in the second quarter, bringing the benchmark rate down to 2.50%. In addition, most respondents also expect an additional interest rate cut in the third quarter, bringing the annual interest rate level down to 2.25% and a cumulative interest rate cut of 75 basis points.

Nevertheless, the direction of the Federal Reserve's monetary policy remains a key variable. According to another survey, economists are divided on the timing of the Federal Reserve's interest rate cuts, with some expecting the Fed to cut rates by mid year, while others believe that the Fed may delay or even not cut rates at all.

We believe that the Federal Reserve will only cut interest rates once this year, possibly in June when it approaches the 'neutral rate' level, so it may pause the rate cuts. However, there is still room for the Bank of Korea to further cut interest rates to make them more neutral. "- Bum Ki Son, economist for Barclays North Asia

Analysts point out that if the Federal Reserve maintains high interest rates in the short term, it may exert downward pressure on the Korean won, thereby affecting the loose policy space of the Bank of Korea. However, considering the current trend of slowing economic growth, the Bank of Korea still has a high possibility of sticking to its interest rate cut plan.