South Korea’s central bank said it plans to cut its benchmark interest rate further next year amid growing political uncertainties and other downside risks. In its monetary policy report for 2025, the Bank of Korea (BOK) said it will ease its monetary policy to maintain the moderating pace of growth in inflation and mitigate downside risks to the economy.
“The BOK will take increased political uncertainties, tougher competition in major industries and expected changes in the global trading markets into account when making rate decisions,” the BOK said in the report.
Central bank to take market stabilization measures
The Bank of Korea’s stance on future rate cuts comes after it unexpectedly slashed its policy rate last month for the second time in a row to help prop up the economy. The central bank cut its key rate by 25 basis points to 3 percent, marking the first back-to-back rate reduction since February 2009, when the country was suffering from the aftermath of the global financial crisis the previous year.
In October, it cut the rate by 25 basis points to 3.25 percent, the first pivot in more than three years.
The central bank also said that it will strengthen its early warning function to avoid any volatility in the financial markets amid uncertainties involving geopolitical risks and economic policies in the new U.S. administration. The central bank also vowed to implement market stabilization measures at the right time if needed.
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Prices to remain stable
South Korea’s inflation rate climbed in November to 1.5 percent from a 45-month low in October, as the country grapples with a weakening Korean won and slowing exports. The figure was higher than October’s inflation reading of 1.3 percent. South Korea marginally avoided a technical recession in the third quarter of 2024, with GDP growing 0.1 percent quarter-on-quarter following a contraction of 0.2 percent in the second quarter.
In a statement, the Bank of Korea said that prices have stabilized and are expected to remain stable due to declining global oil prices and subdued demand pressure. It also lowered its headline inflation outlook for 2024 and 2025 to 2.3 percent and 1.9 percent, respectively, down from its previous forecasts of 2.5 percent and 2.1 percent.
