Bank of Korea unexpectedly cuts interest rates by 25 bps

Investing.com– South Korea’s central bank lowered its interest rates by another 25 basis points in a surprise move on Thursday, as the bank warned that economic growth was likely to slow further in the coming year.

The Bank of Korea lowered its benchmark interest rate by a quarter percentage point to 3.00% at its monetary policy review, where it was widely expected to leaves the rate unchanged to support the Korean won against a strong U.S. dollar.

The rate cut comes as policymakers aim to bolster a sluggish economy that narrowly avoided a technical recession earlier this year. South Korea’s third-quarter gross domestic product expanded by only 0.1% quarter-on-quarter, weighed down by declining exports and tepid consumer spending. 

The central bank expects slower GDP growth in 2025 of 1.9%, compared to its August forecast of 2.1%. It also sees consumer price index inflation at 1.9% in 2025, down from its 2.1% prior estimate.

The South Korean won weakened sharply on Thursday, with the USD/KRW pair up 0.5% after the BoK’s decision.

The central bank had cut interest rates for the first time since mid-2020 in October, and said that there was room for further easing. Lower interest rates offer some relief to households that have faced the highest borrowing costs in 16 years.