BY CYNTHIA KIM AND JIHOON LEE
SEOUL- The Bank of Korea cut interest rates by 25 basis points and significantly lowered its GDP forecasts on Tuesday, steering Asia’s fourth-largest economy from a restrictive monetary policy stance towards a neutral one to support growth.
The BOK’s seven-member board unanimously voted to reduce its benchmark interest rate to 2.75 percent at its monetary policy review, an outcome expected by 35 out of 36 economists polled by Reuters.
The reduction is the third since the BOK started cutting borrowing costs from a 15-year high in October, positioning Korean rates around 150 basis points below the US Federal Reserve’s target range of 4.25-4.50 percent.
The central bank also lowered its growth forecasts for this year to 1.5 percent from 1.9 percent, below the range of 1.6 percent and 1.7 percent flagged last month, while keeping its inflation forecast steady at 1.9 percent for both this year and next.
“The additional cut today is to respond to growth concerns. Consumer sentiment that deteriorated since the year-end is actually leading to weakening of other (economic) indicators, and (US) tariff policies are expected to hurt exports and lead to weaker growth,” Governor Rhee Chang-yong said at a press conference after the rate decision.
South Korea is grappling with the economic impact of US President Donald Trump’s ongoing tariff war, which is likely to undermine corporate profits. Domestic political unrest, following the brief declaration of martial law by impeached President Yoon Suk Yeol in December, continues to dampen consumer sentiment.
