BOK makes surprise rate cut for 2nd session on 'intensifying' downside risks
SEOUL, Nov. 28 (Yonhap) -- South Korea's central bank slashed its benchmark interest rate for a second consecutive session 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.
It marked the first back-to-back rate reduction since February 2009, when the country was reeling from the aftermath of the global financial crisis the previous year.
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.
BOK Gov. Rhee Chang-yong said four out of six board members supported the rate cut in November, and three of the six voiced a need to keep open the possibility of further rate reductions in the next three months.
"We have seen drastic changes after the October meeting. Though we were bracing for uncertainties regarding Donald Trump's election victory, 'the red sweep' (of the U.S. Republican Party) was beyond our expectations," Rhee told reporters.
"Exports have markedly slowed down in the third quarter, and we judged that it was not due to any one-off factor but structural factors such as heated competition in the market," he added.
In a statement, the BOK noted that downward pressure on economic growth "has intensified" and its primary focus would be on spurring the sagging economy in its rate cut decision despite volatility in the foreign exchange market.
"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," the statement read.
The BOK lowered its outlook for South Korea's economic growth in 2025 to 1.9 percent from its earlier projection of 2.1 percent. It also slashed the forecast for this year from 2.4 percent to 2.2 percent.
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.
The gross domestic product (GDP) expanded 0.1 percent on-quarter in the third quarter, lower than market expectations.
"Given high uncertainties, there is a high possibility for the BOK to adjust the growth outlook for next year again in February," Rhee said.
He noted that the quarter percentage-point rate reduction is expected to boost economic growth by 0.07 percentage point.
Speaking of the foreign exchange market, the governor said that South Korea has enough foreign reserves and various tools to handle any volatility in the foreign exchange market, vowing to implement market stabilization measures if needed.
South Korea has seen slower growth in exports, a key growth engine, in recent months.
Exports rose 4.6 percent from a year earlier to US$57.5 billion in October, marking the 13th straight monthly gain, but it was the smallest increase since March, according to government data.
The government and experts have voiced concerns over a further slowdown in exports, particularly due to the potential impacts of high tariffs and protectionist policies by U.S. President-elect Donald Trump.
The rate cut also came as inflation has been on a downward cycle.
Consumer prices, a key gauge of inflation, slowed to the lowest level in 45 months in October by rising 1.3 percent from a year earlier, staying below 2 percent for the second consecutive month.
On Thursday, the BOK lowered its inflation forecast for 2024 to 2.3 percent from its earlier projection of 2.5 percent, and also the estimate for next year by 0.2 percentage point to 1.9 percent.
graceoh@yna.co.kr
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