Bank of Korea Signals Rate Cuts for 2025 as Growth Risks Mount

Seoul, South Korea—According to its annual monetary policy statement, the Bank of Korea (BOK) plans to lower its benchmark interest rate in 2025. 

The bank cited heightened economic downside risks and expectations of stable inflation.

The central bank said it would "flexibly adjust the pace of Base Rate cuts" while monitoring financial stability risks, marking a shift from its previous policy stance.

The policy shift comes as South Korea faces increased political uncertainty, intensified global competition in key industries, and changes in the trade environment, the BOK said in its policy statement for 2025.

The Bank of Korea said that it continues to operate effectively in macroprudential policy and, as a result, expects household debt to continue to slow down.

However, the Central Bank of South Korea stressed the need to periodically monitor the impact of household debt on interest rate cuts.

In addition, the Bank of Korea announced plans to strengthen monitoring of the financial and foreign exchange markets, saying it will take “timely” market stabilization measures when necessary.

Regarding another topic, the Central Bank of South Korea plans to collaborate with commercial banks and financial regulators to conduct a field test of a central bank digital currency (CBDC).

The bank will also push for the transition of the Korea Overnight Financing Repo Rate (KOFR) as the benchmark rate to enhance monetary policy transmission in short-term financial markets.

The BOK maintained its inflation target at 2% for consumer prices, operating under a flexible inflation-targeting system.