South Korea Interest Rate

The Bank of Korea slashed its base rate by 25bps to 3.25% during the October meeting, marking the first reduction since May 2020 and aligning with market estimates. The move brought borrowing costs to their lowest in nearly two years, reflecting easing inflation, weakening economic output, and efforts to curb mortgage-fueled household debt. The board noted that short-term inflation expectations had dropped to 2.8%. Meantime, consumer inflation is projected to stay below 2% this year, down from August’s forecasts of 2.5%, while core inflation is steady at 2.0%. For 2025, headline and core inflation are expected to be consistent with earlier figures of 2.1% and 2.0%, despite factors like Middle East tensions, exchange rate fluctuations, and public utility adjustments. The committee said it will carefully assess the pace of further cuts, weighing trade-offs in policy. Regarding GDP, the economy is expected to grow 2.4% in 2024 and 2.1% in 2025, due to delayed recovery in domestic demand.