South Korea’s Interest Rate Cut and Economic Growth Outlook for 2025
On Tuesday, the Bank of Korea (BOK) announced a 0.25 percentage point cut in its key interest rate, bringing it down to 2.75%. This move aims to stimulate economic growth amid weak domestic demand and increasing uncertainty both locally and globally. The decision was made during a meeting of the Monetary Policy Committee in Seoul, according to South Korea’s Yonhap News Agency.
Monetary Policy to Support Economic Growth
This rate cut follows a previous decision to keep interest rates unchanged, a measure intended to support the weak local currency while assessing the effects of rate cuts implemented in October and November. The latest decision underscores the central bank’s commitment to boosting economic activity, as it downgraded its 2025 growth forecast to 1.5%, down from its previous estimate of 1.9%.
Slowing Growth and a More Pessimistic Outlook
The Bank of Korea lowered its economic growth projections due to sluggish exports and weak domestic demand, reducing its forecast by 0.4 percentage points compared to its November estimate. With a potential growth rate of 2%, 2025 could mark the first time in years that South Korea’s annual growth rate falls below this threshold.
The bank's latest outlook is more pessimistic than projections from other major institutions. South Korea’s Ministry of Finance forecasts a 1.8% growth rate for the year, while the Organization for Economic Co-operation and Development (OECD) predicts a 2.1% expansion.
Stable Inflation Forecast
Despite the bleak economic outlook, the Bank of Korea maintained its 2025 inflation forecast at 1.9%, suggesting a relatively stable expectation for price increases in the near future.
South Korea’s monetary policy appears to be shifting toward stimulating the economy by reducing borrowing costs. However, the country faces significant challenges, including weak exports and declining domestic demand. With ongoing global uncertainties, South Korea’s ability to regain economic momentum in the coming year remains uncertain.
