SEOUL, South Korea (AP) — On Thursday, South Korea’s central bank announced it had reduced its key interest rate for the second consecutive month, revising down its economic growth forecast due to concerns about the nation’s economic performance.
At its monetary policy meeting, the Bank of Korea decided to cut its benchmark interest rate by 0.25 percentage points, bringing it down to 3%. In addition, the bank lowered its growth projections for the country, revising the 2024 GDP forecast from 2.4% to 2.2%, and for 2025 from 2.1% to 1.9%.
This rate reduction follows the Bank’s previous move in October when it lowered the rate by 0.25 percentage points to 3.25%, marking the first cut since May 2020 when the economy was struggling with the effects of the COVID-19 pandemic. Despite high inflation and rising household debt, the Bank is focusing on stimulating the economy with lower borrowing costs.
In its statement, the central bank explained that South Korea’s export-dependent economy is facing increasing challenges, including uncertain global economic conditions, inflation, and the potential impact of new policies from the United States, particularly trade measures under the reelected Donald Trump administration. Trump has pledged to introduce new tariffs on foreign goods, which he claims will reduce the U.S. deficit and create more domestic jobs.
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The Bank of Korea emphasized that the nation’s economy is losing momentum, citing sluggish domestic consumption, declining exports, and rising unemployment. While domestic consumption is expected to see a slight recovery, the outlook for exports remains weaker than anticipated due to fierce competition and the growing trend of protectionist trade policies in major global markets.
This series of policy adjustments reflects the Bank of Korea’s efforts to bolster the economy amid mounting uncertainty and weak growth prospects.
