The Bank of Korea looks increasingly likely to push back the start of its interest rate-cutting cycle as late as October as the country enters the last mile in its inflation fight while the US dials back its rate cut forecasts, experts said Thursday.

The country’s recent data showing signs of weakening inflation, coupled with a rebound in exports, has increased anticipation for rate cuts by the Bank of Korea. The borrowing rates were kept at 3.5 percent for the 11th consecutive session in May since January last year.

However, uncertainties as to when the BOK will begin reducing interest rates have grown this week. On Wednesday the US Federal Reserve downgraded its outlook for key rate cuts a day after the BOK chief struck a hawkish tone on prospects of a near-term rate cut.

The US Fed left the benchmark rate unchanged at a range of between 5.25 and 5.5 percent and indicated that only one rate cut is anticipated before the end of this year. Previously, it expected to cut rates three times this year.

The Fed has kept interest rates at a 23-year high for nearly a year, after kicking off an aggressive rate-hiking campaign in March 2022. With the US rate freeze, the interest rate gap between Korea and the US remained at an all-time high of 2 percentage points.

On Wednesday, BOK Gov. Lee Chang-yong warned against a “hasty shift in monetary policy,” saying he would wait for more evidence that inflation is headed toward 2 percent.

“It is necessary to be patient and maintain the current tightening stance until it is certain that prices will come down to the target level,” he said during a ceremony marking the 74th anniversary of the BOK.

Lee added that Asia’s fourth-largest economy has entered the “final phase of the fight against inflation” underscoring the need for delicate and balanced policy decisions as rate cut delay could also weaken domestic consumption and raise the delinquency rate.

The country’s inflation slowed for a second straight month in May to a 10-month low, creating room for the central bank to lower rates. Consumer prices, a key gauge of inflation, rose 2.7 percent on-year last month, following a 2.9 percent increase the previous month.

However, the latest inflation reading remains higher than the BOK's 2 percent target.

Authorities are concerned that a sudden change to a loosening monetary policy could weaken the Korean won against the US dollar, lifting import prices. A strong dollar could push up raw material prices such as crude oil and grain in Korea, which is highly dependent on imports, and may in turn stoke up consumer prices.

Market experts anticipate Korea’s central bank will lower policy rates once or twice this year.

“Reflecting the BOK chief’s hawkish remarks, I expect that rate cut will begin in October after authorities witness the inflation cooling down in the third quarter and continue a downward trend later on,” said Park Chong-hoon, chief economist at SC Bank Korea.

Citibank Korea Economist Kim Jin-wook predicted that the policy rate-cutting cycle will begin between June and September, citing possible inflation stabilization in the period.

“The core consumer price index of South Korea (which cooled to 2.2 percent in May) is below those in the Euro area, Canada and Sweden, which recently started policy rate cuts. We believe BOK should act sooner as it may prefer a forward-looking monetary policy, not a backward-looking monetary policy,” he said.

With the country’s exports continuing upward momentum and its ratio of household debt to GDP decreasing, the BOK has room to cut interest rates, according to NH Investment & Securities Economist Jeong Yeo-kyung. The brokerage house predicts two rate cuts in August and November.

“There are concerns that BOK’s rate cut would lead to outflow of foreign funds because of a wider rate gap between Korea and the US. But the trade numbers are good enough to offset the losses from foreign outflow,” she said.