Seoul, South Korea – The Bank of Korea (BOK) has decided to cut its benchmark interest rate by 25 basis points to 3.0% from 3.25%, marking the second consecutive rate cut in as many months. The decision comes amid growing concerns about the domestic and global economic outlook.
The central bank's Monetary Policy Committee (MPC) expressed concerns about the slowing pace of economic growth, particularly in exports due to intensifying global competition and rising protectionist sentiments. While consumer spending is expected to continue its moderate recovery, the committee noted that the uncertainty surrounding the growth path has increased.
In its revised economic outlook for 2024, the BOK lowered its forecast for GDP growth to 1.9% from the previous estimate of 2.1%. The bank also revised down its growth forecast for 2023 to 2.2% from 2.4%. These downward revisions reflect the deteriorating global economic environment and the impact of factors such as the ongoing trade disputes and the potential economic consequences of the upcoming U.S. presidential election.
The BOK's decision to cut interest rates twice in a row underscores its commitment to supporting economic growth and mitigating the impact of external shocks. However, the widening interest rate differential between South Korea and the United States, which now stands at 1.75 percentage points, could lead to increased volatility in the foreign exchange market and potential capital outflows.
Other international organizations and investment banks have also lowered their growth forecasts for South Korea. The Korea Development Institute (KDI) and the International Monetary Fund (IMF) have revised their forecasts to 2.0%, while Goldman Sachs and JP Morgan have projected even lower growth rates of 1.8%.
The BOK's decision to ease monetary policy comes as the global economy faces increasing uncertainty. The ongoing trade war between the United States and China, coupled with geopolitical tensions and the potential for a global recession, have created a challenging environment for policymakers.
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