GuShiio.com ① The Bank of Korea cut its benchmark interest rate by 25 basis points to 2.75% on Tuesday, the lowest since August 2022, to stimulate economic growth.
② South Korea is currently facing internal and external difficulties: domestic political instability, while foreign countries face Trump tariff threats;
③ Economists predict that the Bank of Korea may cut interest rates three times this year, and the interest rate may drop to 2.25% by the end of the year.
Cailian News, February 25 (Editor Liu Rui)On Tuesday, the Bank of Korea cut interest rates by 25 basis points, cutting interest rates from 3% to 2.75%, the lowest level since August 2022.
In order to stimulate South Korea’s economic growth, this is the third interest rate cut in the past four interest rate resolution meetings by the Bank of Korea. The Bank of Korea’s interest rate cut is in line with the expectations of most economists. In the future, many economists predict that the Bank of Korea’s interest rate cuts may accelerate amid domestic political uncertainty and the risk of Trump’s tariff threat.
Bank of Korea will accelerate interest rate cuts
The Bank of Korea cut its benchmark interest rate by 25 basis points to 2.75% on Tuesday and further lowered its forecast for economic growth this year. The Bank of Korea currently expects economic growth of 1.5% in 2025, a slight decrease from previous expectations.
It is worth noting that the Bank of Korea’s decision to cut interest rates is, to a certain extent,In order to cope with the negative impact of South Korea’s political instability on the economy,–Just this Tuesday, South Korea’s Constitutional Court will hold a final hearing on the trial of South Korea’s impeached President Yoon Seok Yoon.
Immediately after the interest rate decision was announced, South Korea’s Composite Stock Price Index fell 0.46%, and the Korean won fell 0.2% against the US dollar to 1,431.3 won against the US dollar.
Alex Holmes, head of Asian research at the Economist Intelligence Unit, said in an interview thatHe expects that the Bank of Korea will accelerate interest rates in the future.
Holmes said that although at the end of last year, the Bank of Korea was hesitant to cut interest rates because of concerns about financial stability, especially the real estate market and household debt, it was hesitant to cut interest rates. However, after Yoon Seok Yoon suddenly triggered a “martial law” storm in December last year, South Korean politics fell into turmoil, consumer and business confidence fell sharply, causing the risks faced by the South Korean economy to increase sharply.
Holmes said:
“Now (the Bank of Korea) will worry about how to support the economy and inflation, while concerns about household debt may take a back seat。”
According to preliminary estimates, South Korea’s GDP growth in the fourth quarter was lower than expected, at 1.2%, the lowest growth rate in the past six quarters. The Bank of Korea attributed the slowdown to weakness in the consumption and construction sectors.
Surveys show thatEconomists currently predict that the Bank of Korea may cut interest rates three times this year, reducing interest rates to 2.25% by the end of this year.
Trump tariffs pose economic threat
In fact, in addition to political turmoil, for South Korea, an export-oriented country, Trump tariffs are also a sword of Damocles hanging high on its economic future.
Min Joo Kang, senior economist for Japan and South Korea at ING, said in a report last week that one of the reasons for the excessive weakness of the won is political turmoil in South Korea, but the negative impact of this factor has weakened recently.
She also said that South Korea’s inflation rate this year will remain within the Bank of Korea’s 2% target range, which will give it more room to cut interest rates under the Trump administration’s threat of reciprocal tariffs.
Citibank economists Jin-Wook Kim and Jiuk Choi also recently warned that if the United States raises tariffs by 25% on South Korea, it will hit South Korea’s automotive, pharmaceutical and semiconductor industries and cause South Korea’s GDP to suffer a 0.2 percentage point loss. “In this case, the indirect negative impact on South Korea’s economy could be much greater,” they said.
