South Korea makes surprise rate cut for 2nd session

Seoul(The Uttam Hindu): South Korea's central bank slashed its benchmark interest rate for a second consecutive session on Thursday in a clear indication of its policy focus on reviving economic growth momentum amid slowing exports and uncertainties stemming from the new Donald Trump administration.

In a surprise decision, the monetary policy committee of the Bank of Korea (BOK) cut its key rate by 25 basis points to 3 percent during a rate-setting meeting in Seoul.

The rate cut came a month after the BOK reduced the rate by a quarter percentage point, marking its first pivot since August 2021, as well as the first rate reduction since May 2020, reports Yonhap news agency.

Many analysts had expected the BOK to hold the key rate unchanged in November, as the Korean won has slumped markedly in recent weeks and has stayed around the closely watched level of 1,400 won per dollar, while the country continues to face lingering concerns over high household debts.

Thursday's rate decision possibly indicates that the need to revamp the sagging economy outweighed the need to address the volatility in the foreign exchange market and high household debts for the central bank.

"Although volatility of the exchange rate has increased, inflation stabilisation has continued, along with an ongoing slowdown in household debt, and downward pressure on economic growth has intensified," the BOK said in a statement.

"The global economy has been facing heightened uncertainties surrounding growth and inflation, driven by the new U.S. administration's policies. ... The global economy and financial markets will be influenced by the specifics of the new U.S. administration's policies, by changes in monetary policies in major economies, as well as by geopolitical risks," it added.

The BOK lowered its outlook for South Korea's economic growth in 2025 to 1.9 per cent from its earlier projection of 2.1 per cent. It also slashed the forecast for this year from 2.4 per cent to 2.2 per cent.

The projection for next year comes below the country's potential growth rate of 2 percent and is bleaker than the International Monetary Fund's forecast of a 2.2 percent expansion.

South Korea has seen slower growth in exports, a key growth engine, in recent months.

Exports rose 4.6 per cent from a year earlier to $57.5 billion in October, marking the 13th straight monthly gain, but it was the smallest increase since March, according to government data.