The Bank of Korea, the central bank of South Korea, lowered its benchmark interest rate by 0.25 percentage points on the 11th, from 3.5% to 3.25%, in order to stimulate the country’s slow growing economy.
Reuters reported that this is the first time since May 2020 that a South Korean bank has lowered its benchmark interest rate. In September, South Korea’s inflation rate fell to 1.6%, the lowest level since early 2021, below the mid-term target of 2% set by the Bank of Korea. Korean banks have shifted their focus to domestic economic growth, while in the second quarter of this year, South Korea’s gross domestic product shrank and private consumption declined. The Bank of Korea stated that the South Korean economy has resumed its growth trend, but the pace of growth is slow.
According to Reuters, after the benchmark interest rate was lowered, the Korean won rose against the US dollar, and there was no significant change in local bond futures.
Reuters quoted analysts as saying that as suppressing housing prices and household debt remain important considerations, South Korean banks will slowly further reduce borrowing costs. Considering the potential risks of interest rate cuts as housing debt continues to rise, it will take some time for Korean banks to take further easing measures, and they may lower their benchmark interest rates again in March 2025.
Bank of Korea stated that in terms of the domestic economy, it is expected that inflation will stabilize at the target level and continue to grow moderately; In terms of financial stability, the growth of housing prices and household debt in Seoul is expected to gradually slow down due to the tightening of macro prudential policies. However, caution should still be exercised when dealing with related risks. The bank will carefully weigh factors such as inflation, economic growth, and financial stability, and cautiously determine the pace of further lowering the benchmark interest rate.
According to the Associated Press, Bank of Korea predicts that the South Korean economy will grow by 2.4% this year.