Bank of Korea Signals Potential Rate Cuts Amid Cooling Inflation and Trade Pressures

South Korea's consumer inflation eased to 2.1% year-on-year in July, aligning with forecasts and reinforcing expectations of monetary policy easing. Core inflation held steady at 2%, leaving the Bank of Korea room to maneuver as export growth faces headwinds from new U.S. tariffs.

The central bank paused its rate-cut cycle in June and July, but economists now anticipate a 25-basis-point reduction at the August 28 meeting. Governor Rhee Chang-yong must balance stimulus for the trade-dependent economy against Seoul's overheating housing market.

Barclays economist Bumki Son notes contained inflation expectations create space for accommodation. The decision comes as 15% U.S. tariffs on Korean imports take effect, a compromise that spared exporters from more draconian measures.