The governor of the Bank of Korea stated on Tuesday that the pace of consumer inflation might continue to slow, raising expectations that the Bank of Korea will start cutting interest rates by the end of this year.
"Considering the recent slowdown in international oil prices and agricultural product prices, future prices are expected to continue to gradually slow down, which is consistent with our forecast in May," Governor Rhee Chang-yong said in a statement prepared for the central bank's semi-annual inflation assessment.
He said that domestic demand pressure on inflation might remain manageable, while export growth is expected to be the main driver of economic growth, with an economic growth rate forecast of 2.5% for this year.
Tuesday's assessment supports the consensus among analysts that the Bank of Korea will cut interest rates by 50 basis points in the fourth quarter as overall inflation is expected to slow to around the target level of 2% by the end of this year or early next year.
The Bank of Korea has kept rates unchanged in its May meeting for the 11th consecutive time, after cumulatively raising them by 300 basis points since mid-2021, bringing the rate to 3.50%.
Overall inflation in Korea slowed for the second consecutive month, dropping to a 10-month low of 2.7% in May, and core inflation also fell to 2.2% in May from 2.3% in April.
The Bank of Korea also noted that although the inflation rate is moving towards the target level of 2%, the cost of living in Korea, Asia's fourth-largest economy, remains higher than in other major countries.
Data from the Bank of Korea shows that the cost index for food, housing, and clothing in Korea in 2023 is 155, higher than the average value of 100 for OECD countries.
