Bank of Korea Cuts Key Rate to 2.5% Ahead of Elections, Lowers 2025 Growth Forecast

South Korea's central bank, the Bank of Korea (BOK), has cut its benchmark interest rate by 0.25 percentage points to 2.5%, marking the fourth reduction since October 2024 as part of a monetary easing cycle to combat sluggish economic growth. This decision comes just days before the June 3 presidential election and aims to stimulate the economy amid weak domestic demand, political turmoil, and the impact of US import tariffs under President Donald Trump's administration. The BOK also sharply downgraded its 2025 GDP growth forecast from 1.5% to 0.8%, reflecting concerns about declining exports, subdued consumption, and geopolitical risks. While the rate cut may ease mortgage burdens and potentially boost real estate markets, upcoming stricter loan regulations could temper such effects. Both leading presidential candidates have welcomed the rate cut, pledging to support economic recovery, yet uncertainties linger due to ongoing US-South Korea tariff negotiations and domestic political instability. Despite some initial stability, the South Korean won weakened slightly following the announcement, underscoring market sensitivity to these developments.