Bank of Korea cuts rates amid inflation stabilization, economic uncertainties

Seoul, South Korea—On Friday, South Korea's central bank lowered its benchmark interest rate by 25 basis points to 3.25%, marking its first rate cut since May 2020. 

The Bank of Korea (BOK) made the decision based on stabilizing inflation and slowing household debt growth.

The BOK said the decision was made as inflation showed a clear trend of stabilization, with consumer price inflation falling to 1.6% in September and core inflation slowing to 2.0%.

The central bank's economic growth projections have been updated based on recent forecasts from international organizations. 

The OECD projects South Korea's 2024 economic growth at 2.6%, while the International Monetary Fund (IMF) forecasts 2.5%. For 2025, the IMF projects a growth rate of 2.2%.

"The Board will continue to conduct monetary policy to stabilize consumer price inflation at the target level over the medium-term horizon as it monitors economic growth while paying attention to financial stability," the BOK said in a statement.

The BOK noted that global economic uncertainties have increased. 

However, contrary to previous expectations, the IMF has raised its forecast for U.S. economic growth in 2024 to 2.6%. 

Similarly, the IMF is now projecting China's growth rate to be 5% for 2024, higher than earlier estimates.

Exports have continued to increase in the domestic market while recovery in domestic demand has been slow. 

The unemployment rate has remained low despite a gradual slowdown in job growth.

The central bank also lowered its inflation forecast for 2024, projecting it to remain below 2% for some time. Core inflation is expected to remain stable at around 2%.

The BOK highlighted risks to its outlook, including changes in global oil prices, exchange rate movements, and public utility fee adjustments.

The central bank said it would carefully determine the pace of further rate cuts, assessing trade-offs among policy variables such as inflation, growth, and financial stability.