BOK cuts key rate by 25 basis points amid bleaker growth outlook

South Korea’s central bank slashed its benchmark interest rate by a quarter percentage point on Tuesday in an effort to shore up economic growth amid weak domestic demand and uncertainties at home and abroad.

The monetary policy committee of the Bank of Korea (BOK) cut its key rate by 25 basis points to 2.75 percent during a rate-setting meeting in Seoul.

The move came a month after its rate freeze decision, which was aimed at supporting the weak local currency while assessing the impact of two rate cuts in the October and November meetings.

Tuesday’s decision underlined the central bank’s policy focus on economic growth as the BOK lowered its 2025 growth outlook for Asia’s fourth-largest economy to 1.5 percent from its previous forecast of 1.9 percent.

“Although concerns about foreign exchange markets still remain, inflation stabilization has continued along with an ongoing slowdown in household debt, while the growth rate is forecast to decline significantly. The board, therefore, judged that it is appropriate to further cut the base rate and mitigate downward pressure on the economy,” the BOK said in a released statement.

The BOK pointed to the Donald Trump administration’s tariff policies, slowing exports and a slump in consumption following President Yoon Suk Yeol’s shocking martial law declaration as key factors that affected growth momentum.

Yoon’s martial law imposition on Dec. 3 dented private spending and investment, while leading to a leadership vacuum after the National Assembly voted to impeach him pending a Constitutional Court ruling.

Yoon is currently undergoing investigation on charges of insurrection following his formal arrest last month.

The Trump administration has pledged to impose 25 percent tariffs on all imports of steel and aluminum.

Trump also signed a presidential memorandum earlier this month to devise a comprehensive plan to customize “reciprocal” tariffs, which are feared to affect South Korean industries and the broader economy given its export-driven economy.

Exports fell 10.3 percent from a year earlier to US$49.1 billion in January, logging the first on-year fall in 16 months. The country also logged the first trade deficit in 20 months by reporting a $1.89 billion deficit.

Retail sales, a key indicator of private spending, fell by the most in 21 years in 2024, marking the third consecutive year of decline.

In 2024, South Korea’s real gross domestic product (GDP) increased 2 percent, lower than the BOK’s forecast of a 2.2 percent expansion.

In the fourth quarter alone, the economy barely grew 0.1 percent on-quarter, far lower than the BOK’s forecast of 0.4 percent growth.