Bank of Korea Cuts Rates to 2.75%, Revises Growth Forecast

The Bank of Korea (BOK) cut its benchmark interest rates by 25 basis points on Tuesday, lowering it to 2.75% from 3%, marking its third rate cut in four meetings and the lowest rate since August 2022. This move is needed by economists polled by Reuters as the central bank aims to support a slowing economy.

In a statement, the BOK said the rate cut was to alleviate downward pressure on the economy, as it now expects growth to slow significantly. The central bank revised its 2025 growth forecast down to 1.5%, from a previous estimate of 1.9% in November, citing a weaker-than-expected recovery in domestic demand and sluggish export growth. The BOK also pointed to deteriorating economic sentiment and U.S. tariff policies as key factors impacting growth.

Bank of Korea Cuts Rates to 2.75%, Revises Growth Forecast

While concerns about foreign exchange markets persist, the BOK said inflation has stabilized, and household debt growth has slowed. The central bank maintained its 2025 inflation forecast at 1.9%, though it slightly lowered its core inflation outlook to 1.8% from 1.9%.

The rate cut comes amid heightened political uncertainty, with South Korea’s Constitutional Court set to hold a final hearing on the impeachment trial of President Yoon Suk Yeol. Following the rate decision, the Kospi stock index fell 0.46%, and the South Korean won weakened by 0.2%, trading at 1,431.3 against the U.S. dollar.

Alex Holmes, Asia research director at the Economist Intelligence Unit, noted that the BOK is likely to prioritize economic growth and inflation over concerns about household debt. Min Joo Kang, senior economist at ING, added that while inflation remains within the BOK’s target range, further rate cuts could lead to rising household debt and property prices.

South Korea’s GDP growth in the fourth quarter slowed to 1.2%, the weakest expansion in six quarters, reflecting declines in consumption and construction.

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