South Korea Bold Rate Cut Sparks Optimism in Economic Recovery

Key Points:

• South Korea bold rate cuts the key rate to 3% to boost economic growth.
• Economic growth for 2025 downgraded to 1.9%, with exports showing slower growth.
• Inflation hits 1.3% in October; BOK lowers 2024 inflation outlook to 2.3%.

According to Yonhap, South Korea bold rate cut its benchmark rate by 25 basis points to 3%, the second back-to-back cut.

South Korea Bold Rate Cuts for 2nd Time in a Row

The unexpected move by the Bank of Korea highlights how serious it is about reviving the country’s economy, with exports slowing down and uncertainty over the incoming Donald Trump administration.

The rate cut follows a similar reduction in October and is the first policy pivot since August 2021, the first reduction since May 2020. Analysts had broadly expected the South Korea bold rate cut to keep rates steady as the Korean won recently fell to around 1,400 won per dollar and given sustained concerns over high household debts. However, the central bank opted for economic recovery over foreign exchange volatility and debt challenges.

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Inflation Slows to 45-Month Low, BOK Adjusts Forecasts

South Korea’s bold rate cut its projection for 2025 growth to 1.9% from 2.1% and its estimate for this year to 2.2% from 2.4%. Both numbers are less than the nation’s potential growth rate and short of the 2.2% forecast by the IMF for next year.

Exports, which have been the driver of the economy, slowed sharply. In October, exports rose 4.6% year-on-year to $57.5 billion, the smallest gain over a year. Analysts are warning of further export deceleration driven by potential U.S. protectionism under Trump’s leadership.

The 1.3% consumer price gain in October was the smallest in 45 months. The BOK lowered its forecast for inflation in 2024 to 2.3% from 2.5% and shaved next year’s estimate to 1.9%.