Economic Forecast Downgraded to 0.8% by BOK - a Rate Last Seen During Severe Financial Crises
The Bank of Korea (BOK) lowered its benchmark interest rate to 2.5% on May 29, 2025, in response to slowing economic growth. Governor Rhee Chang-yong announced the decision during a press briefing in Seoul, citing a mix of domestic and external pressures, such as sluggish demand, political instability, and escalating trade tensions.
This move marks the latest in a series of rate cuts initiated last autumn, demonstrating the central bank's determination to support the economy as it faces various challenges. The recent cut is intended to alleviate downward pressure on economic activity, despite ongoing concerns about rising household debt and foreign exchange market volatility.
The BOK revealed that the global economy is expected to decelerate due to increased tariffs and lingering policy uncertainties, exacerbating the economic outlook. The central bank reduced its growth forecast for 2025 to nearly 0.8%, reflecting the significant headwinds faced by the economy.
Analysts predict that it won't be easy for the economy to recover from the aftermath of a potential recession in the foreseeable future. The BOK may consider additional rate cuts if growth continues to weaken more than anticipated. However, the pace and timing of any further monetary policy easing will depend heavily on inflation trends and financial stability risks.
The BOK seeks to strike a balance between stimulating the economy and mitigating concerns about excessive liquidity fueling housing prices and household debt, consistent challenges for policymakers. The central bank will adopt a data-dependent approach when considering future policy decisions.
In summary, the BOK has adopted an accommodative monetary policy stance to help the economy weather domestic and global uncertainties. Although the outlook remains subdued, the central bank remains cautious in its approach to further stimulus relative to financial stability risks.
The BOK's lowered interest rate suggests a government effort to prop up a struggling economy, as business and industry sectors face various challenges. This move comes as the central bank expects a decelerating global economy due to increased tariffs and lingering policy uncertainties, putting pressure on local financial markets. Analysts predict that the economy may struggle to recover from potential future recessions, and the BOK may consider further interest rate cuts if economic growth continues to weaken. However, the BOK will carefully consider both stimulating the economy and managing concerns about excessive liquidity in the housing market and household debt.
