South Korea Implements Unexpected Interest Rate Reduction for the Second Time
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Seoul, Nov 28 (NationPress) South Korea's central bank has made a significant move by reducing its benchmark interest rate for the second consecutive time on Thursday, clearly highlighting its focus on stimulating economic growth in light of declining exports and uncertainties associated with the new U.S. administration.
In a surprising turn of events, the monetary policy committee of the Bank of Korea (BOK) decided to cut its key rate by 25 basis points, bringing it down to 3 percent during a rate-setting meeting held in Seoul.
This rate reduction follows a similar cut made a month prior, marking the BOK's first shift since August 2021 and the first rate cut since May 2020, as reported by Yonhap news agency.
Many analysts had anticipated that the BOK would maintain the key rate in November, especially as the Korean won has significantly weakened in recent weeks, hovering around the critical level of 1,400 won per dollar, while concerns regarding high household debts persist.
Thursday's decision likely reflects that the urgency to revitalize the struggling economy has taken precedence over the need to manage foreign exchange market volatility and high household debt levels.
"Despite the increased volatility of the exchange rate, inflation has remained stable, alongside a gradual decrease in household debt, while the pressures on economic growth have intensified," the BOK stated.
"The global economy is currently facing heightened uncertainties regarding growth and inflation, largely influenced by the policies of the new U.S. administration. The dynamics of the global economy and financial markets will be shaped by the specifics of these policies, changes in monetary policies across major economies, and geopolitical risks," it added.
The BOK has revised its economic growth outlook for South Korea in 2025 down to 1.9 percent, from a previous estimate of 2.1 percent. It has also lowered its forecast for the current year from 2.4 percent to 2.2 percent.
The forecast for next year is below the country's potential growth rate of 2 percent and is less optimistic than the International Monetary Fund's prediction of a 2.2 percent expansion.
In recent months, South Korea has experienced a slowdown in export growth, which is a vital component of its economy.
In October, exports increased by 4.6 percent year-on-year to reach $57.5 billion, marking the 13th consecutive monthly gain, although this was the smallest rise since March, according to government data.
