Fitch Solutions, the consultancy arm of global credit appraiser Fitch Group, forecast that South Korea will further cut its policy rate by the end of the year, extending economic stimulating efforts amid the prolonged COVID-19 crisis.

“We now expect the Bank of Korea to undertake one more 25 basis point rate cut before end-2020 in order to continue providing support to the economy,” the company said in a release.

“We have also revised down our forecast for consumer price inflation to average 0.3 percent for this year, down from the previously suggested 0.5 percent.”

The revision to the monetary policy view came in the wake of the recent epidemic resurgence which has led to tighter social distancing regulations.

The change also came a day after the BOK predicted the Korean economy will contract 1.3 percent on-year this year, marking a steeper-than-expected cut from the previously suggested 0.5 percent contraction.

“South Korea was doubly hit by the crisis, due not only to the impact on the country’s external sector, but also due to a large domestic outbreak,” the company said.

“The BOK noted that the second wave of outbreak is likely to weigh on domestic demand in the upcoming months.”

Seoul’s central bank has undertaken 125 basis points worth of rate cuts so far this year, first in an emergency action in March, then in an additional measure in May. In its recent Monetary Policy Board meeting, the BOK froze the rate at the current record low of 0.5 percent.

Despite growing downside risks, external conditions could provide a much-needed lift to the Korean economy this year, Fitch Solutions added. As top variable, the company cited the improving economic stamina of China, which is Korea’s top trading partner.

By Bae Hyun-jung (tellme@heraldcorp.com)