South Korea's central bank is likely to cut the country's key lending rate for the first time in 38 months this week to boost domestic spending, with inflation having slowed to manageable levels, according to market experts.

A survey conducted by Yonhap News Agency on seven domestic economic experts showed that six predicted the Bank of Korea's (BOK) monetary policy committee would lower the base interest rate by 0.25 percentage points to 3.25 percent during its rate-setting meeting on Friday. If realized, this would mark a significant policy shift, as the central bank has either raised or frozen rates since August 2021.

Experts noted that the BOK cannot delay a rate cut any longer, especially as consumer price inflation dropped to 1.6 percent in September, below the government's target rate of 2 percent. Concerns about domestic spending and investment remain high.

Park Jung-woo, an economist at Nomura Securities, said, "The consumer price inflation rate fell to 1.6 percent in September, which marks a positive development," adding that sluggish domestic demand and expected slower export growth are increasing pressure for a rate cut.

Ahn Ye-ha, an analyst at Kiwoom Securities, agreed, noting that "While concerns about inflation have eased, anxieties of an economic slowdown are growing, leaving the BOK with little choice but to respond with a rate cut."

Cho Young-moo from LG Economic Research Institute said, "Given the trends in private consumption, investment, and overall economic sentiment, interest rates should have already been cut."

There is also strong pressure from the government and National Assembly for the BOK to lower rates to revive domestic demand, which has been affected by high interest rates and inflation. However, concerns about rising housing prices and household debt persist, complicating the decision.

Min Ji-hee, a bond analyst at Mirae Asset Securities, pointed out that the BOK might postpone the rate cut until November, citing uncertainty over household debt trends, which saw a slowdown in September but may not indicate a lasting reversal. (Yonhap)