The Bank of Korea cut its key interest rate by 0.25 percentage points to 2.75% on Feb. 25 at its monetary policy meeting. This follows two previous rate cuts in Oct. and Nov. 2024, each by 0.25 percentage points.
The central bank had kept the rate unchanged last month due to concerns over high exchange rates. The current rate marks the first time S. Korea’s benchmark interest rate has been in the 2% range since Oct. 2022, a span of two years and four months.
Before the decision, the market widely expected the rate to drop as sluggish domestic demand, weak spending in the private sector, and a slowdown in construction and exports raised concerns about an economic downturn.
In the fourth quarter of 2024, the economy grew by just 0.1% compared to the previous quarter. This marked the first time since the 1998 financial crisis that S. Korea had posted three consecutive quarters of near-zero growth. The forecast for 2025’s growth rate is expected to be in the low 1% range, lower than last year’s growth of 2%.
Additionally, the exchange rate, which had been one of the reasons for the rate freeze last month, eased from over 1460 won per dollar in January to about 1420 won in February, providing some relief. A recent survey by the Korea Financial Investment Association also found that 55 of 100 bond experts expected a rate cut.
The market’s attention now shifts to Bank of Korea Governor Rhee Chang-yong’s press conference, scheduled for 11 a.m. Rhee, who appeared before the National Assembly on Feb. 18, said there was broad consensus that the current interest rate cycle is moving toward cuts. However, he added that the timing of further cuts would depend on various factors.
Park Hyung-jung, an economist at Woori Bank, noted that while the rate cut in February had been widely anticipated, the key focus now is how much further, and at what pace, the Bank of Korea will continue cutting rates. The next decision on the benchmark rate is set for Apr. 17.
On the same day, the Bank of Korea also released its economic outlook for 2025. It lowered its growth forecast to 1.5%, down from the previous forecast of 1.9% made in November. The Bank had previously anticipated growth in the range of 1.6% to 1.7%, but revised this down further. The consumer price inflation forecast remained unchanged at 1.9%.
