Bank of Korea Cuts Interest Rates to 2.75% Amid Economic Concerns

On February 25, 2025, the Bank of Korea cut its benchmark interest rate by 25 basis points to 2.75%, marking the third reduction in four months as the country faces slowing economic growth and trade uncertainties. This decision was anticipated by most economists, reflecting concerns over weak domestic demand and the impact of U.S. tariffs, particularly on critical South Korean exports like semiconductors and steel. The central bank cited a GDP growth forecast downgrade to 1.5% for 2025, down from 1.9%, as consumer confidence continues to wane amidst political challenges surrounding President Yoon Suk Yeol's impeachment trial. Inflation remains stable, with January figures at 2.2%, close to the bank's target, allowing the Bank of Korea to prioritize economic growth over financial risks. The need for economic stimulus is further underscored by disappointing growth figures, with the last quarter of 2024 showing the slowest expansion in six quarters at just 1.2%. Analysts suggest that despite the rate cuts, the South Korean won's depreciation has had a limited negative impact on foreign capital flows.