South Korea’s Central Bank Cuts Interest Rate in Surprise Move to Boost Economy
In a surprise move, the Bank of Korea (BOK) cut its benchmark interest rate by 25 basis points on Thursday, citing concerns over the country’s economic growth. This is the first time the BOK has enacted two back-to-back rate cuts since 2009. The decision follows a weaker-than-expected GDP reading in the third quarter, which expanded by 1.5% year on year, below the 2% expected by economists.
The BOK lowered its GDP outlook to 2.2% for 2024, down from 2.4% forecast in August, and cut its full-year growth outlook for 2025 to 1.9% from 2.1%. The move was seen as a response to the deteriorating growth outlook, particularly amid slowing exports. South Korea’s export growth is expected to slow for a fourth straight month in November to a 2.8% year on year, down from the 4.6% rise the month before.
Inflation in the country has substantially slowed, with the October reading of 1.3% marking the lowest rate of inflation since February 2021. Despite this, the BOK judged that it is appropriate to further cut the base rate to mitigate downside risks to the economy.
The decision was a surprise to economists, who had forecast the BOK would hold rates at 3.25%. Several economists had forecast the BOK would pause rate cuts due to the weakness in the South Korean won, which has been depreciating over the past couple of months and hit a two-year low of 1,411.31 on November 14. However, the BOK deemed the rapid depreciation of the currency against the US dollar to be a critical factor in determining the pace of rate cuts.
The BOK’s decision was welcomed by the market, with the stocks benchmark Kospi rising 0.29% following the announcement. The currency was last down 0.3% at 1,392.17.