Nov 27
Investment

South Korea unexpectedly cuts rates


South Korea on Thursday cut its benchmark interest rate by 25 basis points in a surprise move, as the country strives to boost its economy amid growth concerns.

This was the first time the BOK enacted two back-to-back cuts since 2009. It had cut rates by 25 bps in its last meeting in October. Economists polled by Reuters had estimated the bank to hold rates at 3.25%.

The rate cut follows a weaker-than-expected GDP reading in the third quarter. GDP expanded by 1.5% year on year, below the 2% expected by economists polled by Reuters.

The BOK on Thursday lowered its GDP outlook to 2.2% for 2024, down from 2.4% forecast in August. The full-year growth outlook for 2025 was cut to 1.9% from 2.1%.

Morgan Stanley’s chief Korea and Taiwan economist, said the cut was indeed a “surprise.” It shows the weight the BOK was giving to the deteriorating growth outlook, especially amid slowing exports, she added.

In its statement, the BOK said while inflation had stabilized, the downward pressure on the economy had intensified.

“The Board, therefore, judged that it is appropriate to further cut the Base Rate and mitigate downside risks to the economy,” the central bank said.

Inflation in the country has substantially slowed, with the October reading of 1.3% marking the lowest rate of inflation since February 2021.

Before the decision, 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 Nov. 14.

⎪South Korea on Thursday cut its benchmark interest rate by 25 basis points to 3% in a surprise move. This was the first time the BOK enacted two back-to-back cuts since 2009. The BOK lowered its GDP outlook to 2.2% for 2024, down from 2.4% forecast in August. The full-year growth outlook for 2025 was cut to 1.9% from 2.1%.⎪
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