BOK cuts key rate to 2.75%, slashes 2025 economic growth projection to 1.5%

Moving on.

Policymakers at the central bank have decided to lower their key lending rate to boost the local economy whose growth for this year has also been lowered.

Our correspondent Moon Hye-ryeon has the details.

South Korea's central bank has lowered its benchmark interest rate by 25 basis points as widely expected, bringing it down to 2-point-7-5 percent.

The decision was announced on Tuesday following the second monetary policy committee meeting of the year, resuming its rate-cutting cycle after two consecutive rate cuts in October and November last year followed by a pause in January.

"The committee today determined that while concerns in the foreign exchange market remain, a further rate cut was necessary to support the economy, as inflation is stabilizing, household debt growth is slowing, and signs of a significant slowdown are becoming more evident."

The central bank's decision reflects its growing concerns over South Korea's rapidly slowing economy, weighed down by both domestic and global challenges.

Global trade uncertainties heightened by U.S. President Donald Trump's tariff hikes and continued political turmoil following the martial law declaration last December led the central bank to also slash its economic growth projection for 2025.

Lowering its forecast for GDP growth this year by point-four percentage points to 1-point-5 percent, it's the first time since 2022 that the BOK has revised its projection by such a large amount.

Its projection for 2026 remains unchanged, as does its outlook for consumer price inflation this year.

This falls in line with forecasts from other major economic institutions such as the Korea Development Institute, which also lowered its 2025 forecast from two percent to 1-point-6 percent.

South Korea's real GDP growth in 2024 came in at just 2 percent, falling short of the central bank's earlier forecast of 2-point-2 percent, as weak consumer spending and sluggish construction investment were further exacerbated by the domestic political crisis.

The rate cut is seen as an effort to counteract economic headwinds by boosting domestic consumption and investment, and preventing a steeper downturn.

"I don't think you'll see any results within the next few months and that's because there's a usual time lag between lowering the interest rate and what you see in the markets. So I think if we want to see the full effect from the interest rate cut we need to have supplementary budget spending quickly."

"However, concerns remain.

The widening rate gap between South Korea and the U.S. now at 1-point-7-5 percentage points raises the risks of capital outflow, which could further weaken the Korean won and push inflation higher.

Moon Hye-ryeon, Arirang News."