At its November meeting, the Bank of Korea cut its base rate by 25bps to 3.0%, marking the second consecutive month of rate reductions and surprising markets, which had expected a pause.
South Korea unexpectedly cuts base rate
This decision lowered borrowing costs to their lowest level since October 2022, driven by a continued slowdown in inflation, a decrease in household debt, and weak economic growth. The board revised its inflation forecast to 2.3% for this year and 1.9% for next year, both lower than previous predictions of 2.5% and 2.1%, respectively, due to exchange rate fluctuations and falling oil prices. Core inflation is expected to reach 2.2% this year, in line with previous projections, and 1.9% in 2025.
GDP growth downwardly revised
On the GDP front, the economy is projected to grow by 2.2% in 2024 and 1.9% in 2025, down from earlier estimates of 2.4% and 2.1%, reflecting export challenges and potential increases in global trade protectionism. The board emphasized that it will carefully evaluate the impact of monetary easing and consider trade-offs as it works to achieve its medium-term inflation target.
